5 Reasons Companies Perform Competitor Analysis (3 of Them Are Wrong)
Before examining whether competitor analysis is worth it, it’s helpful to gauge your firm’s current starting point. Are you up for basic analysis or more advanced insights?
Competitor Analysis Benchmarking vs. Executive Folk Knowledge
Basic: Most companies have a level of understanding of their competitors. And most executives can readily answer the question of how they are differentiated from competition. It may even be part of the “elevator speech.” With a bit of time, most management teams can also qualitatively develop a SWOT (Strengths/Weaknesses/Opportunities/Threats) analysis of their own organization and key competitors. At times, this work will be further fortified and tested with facts.
More Advanced: At a more advanced level of competitor insights, other firms will have dedicated ongoing functions to benchmark themselves against their competitors’ financial performance. They will also seek to understand their competitors’ pricing and cost structure, sourcing and manufacturing, marketing, product line, salesforce, management teams, innovation and R&D investment, and more. While some may have competitive experts on staff, more commonly, as the firm grows very large, the competitor understanding is fragmented in different silos. For instance, sales may know a lot about the salesforce and product but little about the competitors’ cost structure.
Based on Your Starting Point, is In-Depth Competitor Analysis Worth It?
There are many books written (e.g., Competitive Strategy, Blue Ocean Strategy, The Art of War) and long lists of benefits for competitor analysis. You are likely aware of the many benefits of competitor analysis, such as:
- Innovation: Find market “white spaces” or gaps for your products and services
- More effective spending: Optimize your marketing and sales spending
- Improved profitability: By focusing on both improved pricing and cost advantages
There is a cost, of course. Assuming only a basic starting point, a concerted competitor analysis effort will require meaningful time investment. For instance, filling out this marketing-focused online template might require weeks of work. There are also likely costs in terms of data to purchase, and outside resources may be needed to complete the task.
3 Competitor Analysis Factors to Consider
To determine if the competitor analysis is worth the cost, we suggest answering the following questions:
1. What is driving the need for competitor analysis now?
2. How, if at all, will the information be used?
3. What level of investment does your firm believe is required to complete the work? Note: if there isn’t a willingness to invest time and resources, this calls into question how meaningful the activity is.
Question 1: What is Driving the Need for Competitor Analysis Now?
Over the years, we’ve seen a few common choices, check to see if any of these fit your situation or bear some similarity.
- Due diligence: Is the competitor analysis being asked for as point of fact, for instance, for due diligence for an investment to make sure there are no red flags?
- Verdict: Typically valued and worth investment, with external resources possible
- Specific competitor action alert: Is the competitor analysis being asked for because your executive team is asking questions and wants to understand the situation and validate or deny their understanding?
- Verdict: Thorough analysis likely not highly valued. Executives may just want a quick answer to a specific question
- Decision justification: Is the competitor analysis being done to prove a specific point that you or someone else is looking to make to justify a decision? e.g., we need to invest three times as much in marketing to be competitive?
- Verdict: This narrow framing calls into question the objectivity and validity of the analysis. Will likely not be valued without broader work, and the sponsor will seem biased
- 3 to 5 year strategic plan: Is the competitor analysis part of a bigger strategic review of the business, perhaps a three to five year plan?
- Verdict: Typically valued and worth investment, with external resources possible
- Self promotion: Is leading the competitor analysis important to you to demonstrate leadership and strategic thinking?
- Verdict: While you may value it, unless there is a sponsor or the analysis addresses points 1 and 4, this is likely not valued organizationally
Question 2: How, if at All, Will the Information Be Used?
The answer to this relates to the original driver for doing the competitor analysis.
- Due diligence: The information will be used as an important input to the investment go/no go decision. If the competitive position is weak, the investment will likely not be made or called into serious question
- Specific competitor action alert: The information is likely not going to be used other than to provide an answer to a question
- Decision justification: The information is likely not going to be used as it will appear biased
- 3 to 5 year strategic plan: The information will be reviewed, and depending on the industry situation, it may be used to formulate the strategy
- Self promotion: You will attempt to get the organization to use the information but without alignment and sponsors, you will likely fail
Question 3: What Level of Investment Does Your Firm Believe is Required to Complete the Work?
The level of investment your firm believes is required to complete the work is a huge clue to its importance, along with the person who is sponsoring the work.
- Due diligence: Higher investment, sponsored by board and/or most senior executives. Worth at least 3-4 weeks of a dedicated team’s time
- Specific competitor action alert: Lower investment, request may come from one executive. Worth only a few hours of time
- Decision justification: While this may be useful information, without a senior sponsor, it is not worth investment of more than a few days of time.
- 3 to 5 year strategic plan: Higher investment, sponsored by board and/or most senior executives. Worth at least 3-4 weeks of a dedicated team’s time
- Self promotion: If your firm is not willing to have you spend time on this beyond a few hours, it indicates you do not have buy-in, and it is not worth much
How to Get Started with Competitor Analysis
An effective way to get competitor analysis started is with a Customer Survey that includes both your customers and the competitors’ customers. Depending on the industry and the number of customers, both quantitative and qualitative methods can be used. By using the voice of the customer, the information is more objective.
If you’d like to explore the possibility of working with Michal and the experts at Insight to Action, contact us today. Our Competitor Analysis gives you an advantage in key market spaces and provides a deeper understanding of your competitors’ actions and anticipated future moves.
