Why Competitor Analysis is Important

Why Competitor Analysis is Important


As an entrepreneur, you might wonder why competitor analysis is important. Competitor analysis is simply a strategic technique that is used in evaluating the outside competitors. The aim of this analysis is to identify the strengths and weaknesses of the competitors of a company and use the information in improving the efforts of the company that performs the analysis. To be effective, the analysis should start by obtaining vital information from competitors and use the information to predict the possible reaction of the competitor to certain circumstances. This analysis is very important considering that companies operate under competitive environments.

Here are the reasons why competitor analysis is important

  • Identifying potential and present competitors

Potential and present competitors of a company might seem obvious but the range of the current and potential competitors is usually broader than it might seem at first. It is important that companies recognize that competitors will not always offer similar services and/or products. This analysis makes predicting the behaviors of competitors possible.

  • Establishing the positions of the competitors in the market or industry

Competitor analysis enables an organization to simply analyze strategic groups. Initially, competitors can be grouped into two based on their differences and similarities in terms of the strategies that they pursue. Strategic groups’ conceptualization makes competitor analysis manageable. Establishing a narrow and focused approach helps in the implementation of a strategy and realization of the desired results.

  • Determining the strategic thrusts and objectives of the competitors

Analyzing the objectives of competitors is very important since it provides vital insights into whether the competitors are satisfied with their current market positions or profits. This enables an organization to determine whether competitors are likely to retain their current strategies especially after competitors make certain strategic moves. Firms should understand the thrusts and objectives of competitors because these will influence their strategic decisions.

  • Determining the current and future strategies

A company should review the present and past strategies of every competitor. Past strategies will offer insights into the failures while revealing how changes were engineered by organizations. Reviewing the strategies of competitors entails assessing the target market of competitors and their differential advantage. Additionally, a company should evaluate the success of competitors in the achievement of objectives as well as implementation of strategies.

  • Evaluating the weaknesses and strengths of competitors

Competitor analysis entails evaluating their weaknesses and strengths. This is a vital pre-requisite for establishing a strategy for competing with them. Whether competitors are able to implement their strategies and realize their goals is largely dependent on their capabilities and resources. Ideally, an organization can use its advantages with this knowledge to benefit from the weaknesses of the competitors.

How to conduct a competitor analysis

While conducting a competitor analysis, a company should aim at knowing more about at least five major competitors. This analysis should be about comprehension of what other businesses are doing, more so, in regards to marketing strategies. To conduct a competitor analysis, seek the following information about competitors:

  • The range of services or products that they offer
  • How they package their products
  • How they price their products
  • What they say about their products
  • The marketing copy style that they use

When and why competitor analysis is important for a company

It is quite easy to be wrapped up in the events of your company. This is because there is so much to deal with including new products, profits, employees, margins, cash flow and tax among others. However, as indicated above, it is important to monitor the activities of competitors. A competitor analysis will basically help your company in making strategic decisions because it provides intelligence on the major competitors in the industry. It is important that a company performs a competitor analysis before engaging in strategic planning. Competitor analysis will act as the starting point from which a company can think about the competitive dynamics in the industry and analyze the industry better in order to come up with policies and strategies that will influence the behavior of rivals to its advantage.

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