Deep Dive into Your Competitors (Part One)

This post reviews the tools you can use to conduct a deeper look at your competition. It takes several steps to understand your competition better and how they position themselves in the marketplace. The first step is to identify your direct and indirect competitors. The following step is to conduct an in-depth review of each competitor’s business model.

Create a Comprehensive Database

To conduct a more comprehensive analysis of your competitors, you should make a list of direct and indirect competitors, hopefully identified during your early screening work. Direct competitors are those organizations that offer a comparative product to the one you plan on developing with your venture. In order words, the customer sees your venture’s offering as a similar product and an acceptable alternative to existing products. Think Nissan versus Volvo. Both sell cars and compete in specific markets, especially in technology-enabled vehicles. Direct competitors can further split into organizations that already exist and compete in the market, and those that currently don’t offer competitive products are possible new entrants. Think of Google’s early research into smart cars as the movement of a potential future entrant into the car industry.

While direct competitors offer similar products, indirect competitors are those organizations that provide optional solutions to the customer’s problem but are considered different products. They are considered different than what you plan to offer, but the customer may see them as an acceptable alternative solution to their problem. So, in this case, you might think about various transportation offerings that a customer can use to say commute to work. They can buy or lease a car from Nissan. They could also consider public transportation or a car-sharing service as an optional way to get to work.

As discussed in an earlier post, you should have identified all possible solutions available to your customers during an early screening. Solutions can function in a very similar way as you consider with your new product or optionally solve the customer’s problem. As you approach a deeper analysis, review your list. By this point in the venture realization process, you will have already been engaging early customers through the discovery process. As you interview and survey target customers, one of the critical areas of exploration is learning how they currently solve the problem in question. Be sure to update your competitor database with what you learn from the customer discovery efforts.

Once you have a comprehensive list of competitors, we usually recommend starting with your direct competitors, especially those operating within your target customer segments. Are they reaching customers in your geographic area? Are they targeting similar customer segments? List these direct competitors and begin to research all the elements of their business model.

Explore Competitors’ Business Models

The following recommended step is to identify and evaluate each of your competitor’s business models in detail. Many founders tend to focus the majority of the competitive analysis on the product benefits and features. Of course, this element of research is critical, and I will spend some time on it. That said, there are many strategies to gain a competitive advantage when planning to enter a new market. Entrepreneurs must evaluate all the ways that one can build a sustainable advantage. Successful market entry and penetration go beyond unique product offerings. You can be unique across any business model elements, from different customer segments to innovative delivery systems to compelling pricing strategies.

For this reason, I advocate that you comprehensively study each competitor’s business model and all its elements. Note: At Columbia Business School, we teach Business Model Canvas with its nine elements created by Alexander Osterwalder. There are many articles written on this and beyond the scope of this post. However, I will review how to analyze competitors applying each of the nine business model canvas elements.

Value Proposition. As a starting point, begin reviewing your competitors’ product offerings and associated value proposition. Learn as much as you can about their products, including the features and benefits they highlight in their marketing materials. During the pre-screening phase of your competitor analysis, you identified the companies offering products the same or similar to your venture’s concept. Now it’s time to complete a more in-depth analysis of the competitors’ products – benefits, functionalities, and features. One approach is to list all the companies on a spreadsheet to conduct product analysis. Then, reviewing each competitor’s websites and associated marketing materials, list any benefits and features provided by each competitor. Once you complete your review, you will have a good sense of which benefits and features are standard across competitors. You will also identify if any competitors have something unique when compared to others. At this point, you should add information about your venture’s current product design concept. How does your product compare?

While, as you will see, each business model element will provide competitive insights, you cannot spend enough time learning about product offerings already in the market. A deep understanding will drive your strategy as to how to best position your product for market entry. This comparative analysis helps to learn product design specifics, especially about overall functionality, feature sets, and overall benefits. From a competitive strategy perspective, you want to how many competitors offer the same benefits and features of your products. The more rare the occurrence, the better chance that you have an opportunity to gain some advantage.

Deep product analysis helps you understand where you may provide unique value to your customer, what your competitors are doing right, and where they are falling short. Importantly, how are your competitors differentiating themselves in the marketplace?

Customer Segments. Your next step is to investigate what customer segments your competitors are targeting? Next to the analysis of your competitors’ product offerings, who they are selling to is an essential piece of information. You gain insight into how they view the customer problem and desired outcomes. Additionally, you can learn how they segment their customers and who the ideal customer is from the competitor’s perspective. Finally, by investigating what their customers are saying in reviews, you can determine where they are meeting needs and what openings there may be for your venture in the marketplace.

You can ascertain information about your competitors’ customers in several ways. I suggest that you start by reviewing their website and social media presence. How are customers portrayed in these outlets? What demographics are represented by the images? Take a look at their marketing and promotional activities to see who they target as customers and how they segment them. If we take the e-bike companies as an example, look at the cyclists (demographics) and where they are riding (context) in the commercials? Commuters? Family vacations? Mountain bikers? You will begin to identify which segment(s) are the focus of their efforts.

Customer Engagement. Your competitors’ Customer Relationships and Channels are the following two BMC elements to investigate to learn more about the competitive landscape. In aggregate, these two elements describe how you and your competitors engage the customer.

Customer Relationships describe how enterprises interact and engage their customers throughout the product lifecycle, from initial awareness through post-purchase service. Focusing on how your competitors acquire new customers is an essential first step at this point of the process. As a startup, you will focus on customer acquisition, so learning competitor strategies and activities will facilitate your understanding of your best approach. What is their plan for creating awareness and educating the customer on the benefits of their solution? How are they engaging customers and moving them through the sales funnel from awareness to research to purchase? What promotional activities are they deploying? Social Media Activity? Free Webinars? Podcasts? FAQs? How involved are competitor employees or brand ambassadors in the sales process? To what degree are customer questions answered by automation versus human contact? 

Can you learn a good deal by analyzing the competitors’ customer engagement with social media? How much are customers engaging with the company’s content? Is the tone positive or negative? Content analysis will validate whether the customer is happy with the current solutions or room to motivate them to consider options.

An essential part of customer engagement is the Customer Channels your competitors use to access the market and deliver solutions. Channels refer to how the enterprise delivers its products and communicates with your customer throughout the product lifecycle. These touchpoints may range from the point of purchase, provision of customer support, and collection of customer feedback. Review all the touchpoints that your competitors are engaging the customer. What channels are they using to communicate throughout the sales funnel, from initial awareness to post-purchase interactions? In today’s business environment, competitors engage customers through several channels, sometimes referred to as the omnichannel approach. 

Key Activities, Resources, & Partnerships. There are three elements of the Business Model Canvas that address the enterprise’s internal operational requirements. What Key Activities, Key Resources, and Key Partnerships are required to deliver value to the customer. I think of this as the infrastructure that your competitors need to provide value to their customers. I start by investigating the competitor’s key activities with a focus on their core competencies.

An organization’s core competencies are associated with the fundamental requirements for offering the value proposition to the target customer. The associated activities must operate at a very high level of quality and performance for your business model to be repeatable and scalable. Organizations typically view their core competencies as skills, domain knowledge, and experience that differentiates them in the marketplace and thus provides a competitive advantage. Core competencies can be associated with various operational activities, including research development, manufacturing, supply chain management, and industrial design. It is vital to ascertain your competitor’s core competencies as part of this analysis. What specialized knowledge and skills does a competitor possess to offer the customers innovative solutions consistently? Can these competency areas be readily replicated by you, and what actions must you take to develop them? Are there unique competencies that you possess that will help position you competitively in the marketplace?

The Key Resources are the assets needed to deliver the solution to the customers. Assets can be physical, financial, intellectual, or human. If you are competing in a technology-focused product category, competitors’ critical assets may include human resources with specific technical skills, such as a recognized scientist or engineering expert. Intellectual property in terms of patents or trademarks may provide your competitors with distinct advantages. Physical locations such as regional distribution centers may place competitors in a unique position to scale globally. Many of my students use to learn what technologies competitors are using to support their business model strategies. 
Another business model element concerns what strategic relationships your competitors have cultivated to support their ability to provide value to the customer. These Key Partnerships help a competitor’s capacity to lower operational costs, expand distribution channels, or enhance brand recognition. As you research your competitors, look for key relationships with manufacturers, suppliers, distributors, trade associations, regulatory agencies, competitors, and technology providers.

Revenue Streams & Cost Structure. The last two business model elements to consider in your competitive analysis might be called their profit model. The due diligence work here focuses on how they generate revenues and how much executing their business costs.

Your competitors’ Revenue Streams include how their various product and service offerings generate income. While it is often difficult (but not impossible) to determine specific revenue details by product, you can usually extrapolate from various sources some information about how much each product contributes to their overall revenues. You can ascertain how much customers are paying for their products and payment schedules from marketing materials. Is a customer purchase a one-time event or ongoing, such as a monthly subscription payment? What options do they have in terms of credit or payment schedules, and the like? You can also look for any evidence that points to the length of the sales cycle, the time it takes the customer to complete the purchase from the initial point in time that they are aware that the product is available. By studying the competitor’s sales process, you may be able to estimate how long it takes to convert an interested party to a paying customer.

While many factors influence how to price your product, one major piece of information is how much your competitors are charging for similar solutions. At this stage of your analysis, you should prioritize efforts to determine competitors’ pricing strategies. Are competitors low or high-cost providers? Are there pricing strategies for online and physical delivery? How do they use discounting to move customers along the sales funnel? Do they offer perks such as first month free, referral discounts, or free shipping?

Finally, you should see what you can learn about your competitors’ Cost Structure. At this point, you are hoping to identify any high percentage costs, those related to their key activities and resource requirements. You want to specifically focus on anything associated with prices of goods sold or other variable costs that impact product profit contributions. In some cases, you can extrapolate this information from public records. But most likely, you will learn more by speaking to the supply chain and other industrial players in the market. For example, to estimate how much it costs to produce a specific product, you can call manufacturers to determine component costs. Usually, it takes some mental re-engineering to consider all the product components and then track down expenses. But it is quite feasible.

Next Up

In the next post, I will conclude our deep dive into analyzing your competitive landscape by building what you have learned about your competitors into a strategic plan for market entry.

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