Competitive analysis - the tasks, methods and objectives

The professional competitive analysis - how to optimize your competitiveness!

Rising costs and increased competitive pressure due to digitalization, online retail and globalization are exacerbating the situation for companies in the battle for market share.

From this perspective, it is important to obtain information about competitors' strategies, market position, product quality and objectives.

This effectively supports strategic corporate planning as well as marketing campaigns and sales agendas and underpins them with facts.

What is a competitive analysis?

Within market research, competitive analysis is part of strategic market analysis; it lists and evaluates the methods, instruments and strategies that competitors use to enter the market and achieve their business objectives.

In this way, valuable insights can be gained not only for your own strategy planning, but also for product management and for marketing and sales tasks. In terms of practical implementation, a distinction is made between strategic and operational competitive analysis.

Differentiation from competitor analysis and market analysis

Although competitive analysis, like competitor analysis, is a classic component of market analysis, competitive analysis is sometimes used in the literature as a generic term for the areas of market analysis and competitor analysis.

As the individual areas of analysis are closely interwoven, the terms "competitive analysis, market analysis and competitor analysis" can also be used interchangeably, and there are also thematic overlaps.

Definition of the term competitor analysis

Competitor analysis involves collecting comprehensive information about competitors, processing it and - ideally using special analysis tools - evaluating it according to strategic aspects. The results serve as a decision-making basis for the corporate strategy to be chosen or for potential investors, as well as a basis for internal activities in the area of operational business.

A high-quality competitor analysis not only provides information on the number, market shares and products of competitors, but also draws a strength/weakness profile of competitors.

The following points should be covered as part of the competitor analysis:

• Number and characterization of real and potential competitors
• Market position
• Who is the market leader?
• Quality of the competitor products
• Differentiating feature?
• Sales channels?
• Price structure?
• Discount systems?
• Payment and delivery terms?
• Services provided?
• Image of competitor companies and their brands?
• Target groups of the competitors?
• Type and scope of advertising measures?

Definition of the term market analysis

In market research, market analysis describes the systematic and objective analysis of a defined market at a specific point in time using concrete figures and data. It provides the company with facts about market volume and potential as well as market development, market shares and customer structure. It also provides information on general conditions such as the economic situation, legal provisions or prevailing trends.

The market analysis also provides information on whether the target market is suitable for achieving a sufficient sales volume or which measures are recommended to increase sales opportunities.

A precise definition and description of the target group is always a prerequisite for carrying out a market analysis.

Market analysis includes the following aspects:

• Market potential of products or services
• Market volume
• Development of the market
• Market segmentation by region/country, customer or product group
• Distribution channels, logistics
• Competition analysis
• Product life cycle analysis

Tasks and objectives of competitive analysis

A well-founded analysis of the competitive situation should be carried out for the first time when a company is founded and then repeated annually. Its main purpose is to identify competitors' strategies and objectives and to predict their behaviour, e.g. in the event of market changes. It is also used to optimize your own strategic orientation and market performance.

Other areas of application include clarifying which competitors are present on the market, what strengths and weaknesses they have and determining the general intensity of competition on the market.

After the analysis has been completed, it should be possible to determine your own positioning and realistically assess your chances of success on the market.

A professional analysis of the competition answers the following questions, among others:

• What negotiating power does the competition or its customers & suppliers have?
• What room for maneuver exists in view of the current strategies of competitors?
• Are there any market niches, if so, which ones?
• Do innovative products or services have a chance on the market?
• Which marketing strategies are promising?

Methods of competitive analysis

A basic distinction is made between operative and strategic competitive analysis.

Operative competitive analysis

Common methods here are:

• Product comparisons - These are evaluations with a high level of detail, the assessment of comments made and benchmarking approaches taking qualitative and quantitative criteria into account.

• Product benefits - Unique selling points and other product benefits are used as sales arguments against competing products.

• Positioning papers - These contain statements on competitor activities (e.g. introduction of new products), summaries of relevant key points, event reports, description of the consequences for the market situation and own company, decisions to be made and other recommendations (e.g. development of an adequate counter-position).

• Activities against competitors - This involves using well-founded arguments to emphasize your own strengths, refute criticism and play down internal weaknesses and the advantages of the competition.

Strategic competitive analysis

Methods used:

• Industry analysis - This tool is used to analyze entire industries or economic sectors and present the respective market leaders in a kind of portfolio in matrix form. This consists of various categories to which any number of individual criteria can be assigned. By objectively evaluating and weighting these criteria, a total value is obtained for each category, which can be visualized in diagram form.
• Company profiling - Basic company data and the company history of competitor companies are listed in profile form, with individual strengths and weaknesses accentuated accordingly.
• Competitive comparison - This method is based on a series of defined factors such as corporate strategy, market share or product quality and enables reliable conclusions to be drawn about performance advantages or individual pent-up demand from the competition. A distinction is made between comparisons of strategy and success-relevant criteria such as product characteristics, market position or price structure, performance comparisons with a focus on key financial figures such as sales, liquidity and operating result, and market position comparisons that analyze the market share-related ranking of competitors in a defined market environment.

Excursus: The SWOT analysis: a helpful tool for creating your own and others' strength/weakness profiles

The SWOT analysis (SWOT = Strengths, Weaknesses, Opportunities, Threats) is a powerful tool in market research and is used to optimally align your own strategies based on existing strengths and weaknesses and to obtain detailed information about competitors.

Source: https://www.projectsmart.co.uk/swot-analysis.php

The SWOT analysis consists of internal and external factors:

• Internal factors: strengths and weaknesses
• External factors: opportunities and threats

The factors are analyzed and evaluated in relation to their individual opportunities and risks.

A correctly conducted SWOT analysis answers the following questions:

• Which individual strengths does the company use to exploit which opportunities?

• Which specific advantages does the company use to minimize which risks?

• Which individual weaknesses does the company reduce in order to exploit which opportunities?

• Which specific weaknesses is the company working on to prevent which risks?

• What is the fundamental opportunity/risk profile in the target market?

Conclusion

In times of increasing market competition, rising cost pressure and growing globalization and digitalization-related challenges, a professional and regular analysis of the competition is an essential element of any business strategy.

This enables the company to react appropriately to changes in the market and changes in competitor behavior. Divided into an operational and a strategic area, the competitive analysis provides clarity about strategies, goals, market position and product quality of the competition and provides a valuable decision-making basis for the strategic orientation of your own company as well as for targeted activities in the areas of marketing and sales.

Conducted annually, the competitive analysis helps to maintain the competitiveness of your own company.