3.3 Competitive Analysis
Learning Objectives
By the end of this section, you will be able to:
- Understand the elements of a competitive analysis
- Describe tools you can use to refine and focus your planning (three circles, SWOT, PEST)
- Recognize social media’s role in saving time and money on research
- Understand how a business model helps determine the feasibility of an opportunity
Conducting a competitive analysis helps you focus your idea and identify your unique selling proposition and competitive advantage.
Competitive Analysis
A competitive analysis should provide the entrepreneur with information about how competitors market their business and ways to penetrate the market by entry through product or service gaps in areas that your competitors do not serve or do not serve well. More importantly, competitive analysis helps the entrepreneur develop a competitive edge that will help create a sustainable revenue stream. For example, a big company like Walmart primarily competes on price. Small companies typically cannot compete on price, since the internal efficiencies and volume sales available to large corporations like Walmart are not available to small companies, but they may be able to compete successfully against Walmart on some other important variable such as better service, better-quality products, or unique buying experiences.
When preparing the competitive analysis, be sure to identify your competitors by product line or service segment. For an entrepreneur, this activity can be difficult when the industry does not yet exist. In the case of Bee Love, Palms Barber didn’t have direct competitors, but she did have related competitors of traditional skin care products. Her unique idea of all-natural, honey-based skin care products created a new market. The competitive analysis might need to focus on substitute products rather than direct competitors. There are two main tools used in analysis of competitors: a competitive analysis grid and the “three circles” approach.
Competitive Analysis Grid
The competitive analysis grid should identify your competitors and include an assessment of the key characteristics of the competitive landscape in your industry, including competitive strengths and weaknesses and key success factors. Table 3.2 provides an example of what a competitive analysis might look like for a bicycle shop in a tourist locale.
| Key Characteristics | Sid’s Cycle | City Cycle | SpokeMasters | Target |
|---|---|---|---|---|
| Strengths | Product knowledge, Repair service | Repair service | High quality, Top brands | Price, hours (open seven days per week and online) |
| Weaknesses | Limited selection | Poor customer service | Pricing, no entry-level products | Low-end quality, no repair facilities |
| Product Quality Level | Low-middle | Middle-high | High-end | Entry-level |
| Price Point | Middle | Middle-high | High price | Lowest price |
| Location of the business | Suburban strip-mall on busy highway | Outskirts of tow