Understanding your customers is important — but it’s not enough.
There’s something (… or someone) else you need to understand if you want to win.
Yeah, I know, the title spoiled the surprise. I’m talking about your competitors.
Look, you’re not operating in a vacuum.
There are other businesses trying to win the same people you’re targeting, with similar products, similar pricing, and maybe a bigger budget.
And for the love of everything, don’t just google your competitors and call it a day. There are different types of competition that influence your positioning, pricing, and strategy — and if you ignore them, you’re likely to make bad calls.
In this article, we’ll walk through what competitor analysis actually involves, how to approach it strategically, and the four types of competitors you need to identify and track if you want to stay competitive.
A competitor analysis investigates the competing firms in the marketplace and reveals their competitive power against their own firm. For this, we need to consider the size and industry position of our own company. This is compared to the 4 types of competitors as revealed by the competitor analysis. Based on these two pillars – its own competitive strength and the power of the 4 types of competitors in the marketplace – the firm can decide how to position itself to gain the strongest possible competitive advantage.
How does a competitor analysis work?
Step one: The company constantly compares the value and customer satisfaction delivered by its products, prices, channels, and promotion activities with those of its close competitors.
This answers a set of questions:
Step two: Based on the position and performance of the firm relative to that of competitors, the company can discern areas of potential advantage and disadvantage.
In step one of the competitor analysis, the company will cluster competing firms in its market into 4 types of competitors. The cluster is an indication of the competitive strength of the competing firm – and thus an indication of the danger it means for our company.
Market leader:
The market leader is the most powerful one among the 4 types of competitors. The market leader is the firm in an industry with the largest market share. It usually leads other firms in price changes, new product introductions, distribution coverage, and promotion spending. In other words, it is the firm that dominates a market.
Examples of market leaders include Nescafé, Chanel, Johnnie Walker, Coca-Cola, McDonald’s, Marlboro, and Shell.
Market challengers:
The market challengers may not be the most powerful ones in an industry, but can still be the most dangerous ones due to their aggressiveness. A market challenger is a runner-up firm in an industry that is fighting hard to increase its market share. It aggressively attacks competitors to get some of their market share. For example, Lexus challenges Mercedes, Adidas challenges Nike, and Airbus challenges Boeing. The challenger might attack the market leader, other firms of its own size, or smaller local and regional competitors. Some runner-up firms will choose to follow rather than challenge the market leader.
Market followers:
Market followers are firms that just play along. They seek stable market shares and profit by following competitors’ product offers, prices, and marketing programs. In other words, a market follower is a runner-up firm that wants to hold its share without rocking the boat.
Market nichers:
Market nichers are firms in an industry that serve small segments that the other firms overlook or ignore. Market nichers are often smaller firms in a market, but can even be larger firms that lack established positions. Market nichers avoid direct confrontations with the big companies by specializing along market, customer, product, or marketing mix lines. However, through clever niching, low-share firms in an industry can be as profitable as their large competitors.
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