Analyzing the competition with competitive positioning

• Studying the competition
• Segmenting the competition
• Evaluating the customer benefits offered by the competition

It is not unrealistic for you to base your entire business plan around what other competitors in your industry are doing. Based upon your idea, you could simply study the marketing, management and finances of one, or a few, of your direct competitors and develop a comprehensive business plan. However, instead of developing a "me too" plan, you will want to describe everything that differentiates your business from your direct competitors, makes it superior, and will cause customers to select your products and services over theirs.

The thought process that you will use to develop this section of your business plan is similar in many respects to that described previously for developing customer segments. If there are many competitors in your industry, then you will want to group them into direct and indirect competitors. For instance, if you were going to open a fast food restaurant, then your direct competitors would be other fast food restaurants, and your indirect competitors would be sandwich shops, a diner or two, and any other establishments that sell prepared food.

Sometimes it will not be clear who your direct and indirect competitors are, until you conduct some market research. Remember how you answered the "what business am I in?" question. If you owned a movie theater, then you might have answered the question by saying "I am in the movie theater business," and you would only consider other movie theaters as your direct competitors. However, think about who your competitors would be if you had answered the question by saying "I am in the entertainment business." All of a sudden, you are not only competing with other movie theaters, but also with video game arcades, video rental stores, cable television, and any other businesses selling consumer entertainment.

Many businesses make the mistake of entering markets that are already saturated with competitors. These markets tend to have been established for a period of time, and most, if not all, of the customers needs are being satisfied. Analyzing the competition will help you to identify a market niche that is not saturated, where you can compete effectively, and satisfy the needs of your customers.

Studying the competition

Readers of your business plan will want to know all about your competition. Who they are? How many of them are there? Is their business increasing or decreasing? How is your business different, and better, than theirs? Look for opportunities where your business can gain a competitive advantage. Capitalize on their weaknesses and avoid their strengths.

• Prepare a list of all of your competitors, including name, address, phone, email, etc.
• Review their advertisements and brochures, and summarize their product features and benefits.
• Study their pricing strategy and determine what value they are offering customers.
• Determine if they are trying to hire, or layoff, people? Who are they trying to hire or fire?
• Call them on the telephone, and listen to their greeting and to how your questions are answered.
• Visit their store and buy one of their products.
• Go to a trade show and get one of their brochures.
• Try returning something you bought from one of your competitors. Could you only return an item for credit, or could you get your money back?

By conducting a thorough study of your competition, you will be able to learn what business tasks they perform well and which ones to avoid. For instance, a PC retailer might review the competitive practices of PC mail order companies, and discover that providing technical support over the phone is a perceived benefit by new computer buyers. If the PC retailer were to incorporate technical phone support into its existing operation, it would gain a competitive advantage over other PC retailers without technical support, and be on a "level playing field" with PC mail order companies.

Segmenting the competition

After you have made a list of all of your possible competitors, you should group or segment them to identify who you are really competing against. Competitors can be segmented according to the markets they serve, the products they produce, or their business operations.

Once you have completed your market segmentation, and identified your target customers, then you might identify your direct competitors as those who are serving the same market. For instance, suppose your business plan calls for selling your products and services to high income families. Identify your competitors as those who are selling similar products and services to this market. To facilitate this process, consider using some of the demographic variables discussed previously. For example, an upscale hotel might consider its direct competitors to be other hotels that cater to families with incomes in excess of $100,000 per year.

The most obvious way to segment your competitors is according to the products and services they produce. You can consider your competitors to be those that produce the same, or similar, products and services as your business. However, just because you are selling products and services that are similar to those of another business, does not mean that you are actually in competition with that business. Customers make the decision. Think about a large multinational corporation in search of an advertising agency. This corporation will only consider a handful of the larger agencies to handle its account, and rule out the myriad of smaller agencies that essentially provide the same services.

Along the same lines as looking at the products and services that other businesses sell, you can also look at their operations to determine if they are your competitors. Competitors can be grouped according to their production capabilities, research and development personnel, product and service variety, or channels of distribution. For example, a mail-order PC business may consider other mail order PC businesses as being direct competitors, and PC retailers as being indirect competitors.

There are as many ways to segment competitors as there are ways to segment customers. You must select the most appropriate criteria for your industry, while considering your goals and objectives for the future. If you want to compete with Coca-Cola, then you must set goals and objectives that will make your business better than Coca-Cola.

Evaluating the customer benefits offered by the competition

Although it would be great if your business could be the best at everything, economic and financial constraints will cause you to choose your battles carefully. Ideally, you will select areas where you can afford to compete, the competition is weak, and customers will perceive a benefit. Create a table similar to the following and map your business to the competition.

Below is South Mill's description of the competition. Note that the company has identified its direct competitors by name and also placed itself in the industry by describing their relative sizes. Its supporting material would include the annual sales revenue and unit volumes for these competitors.