Thinking About the Competition
We would love to know what our competition is up to. However, it can be hard to gather that information and make sense of it.
Everyone wants to know more about their competition. Unfortunately, few competitors are forthcoming with their internal data; even public companies report only the minimum amount of data required for legal compliance. As a result, it can be hard to discern what your competition is doing.
Sadly, this means many companies take an informal approach to competitive intelligence, by relying on anecdotes and qualitative feedback instead of true data. Doing so is dangerous, as you falsely believe that you understand the competition. When in reality, you are only seeing a very biased slice of what is really happening. How then, do you gather competitive data and use it to make informed strategic decisions?
While it might not be possible to (legally) discern the inner workings of your competition, you can measure and analyze their external impacts on the market. As they are your competition, you are selling similar products to similar customers in similar markets which naturally produces useful public data points that you can use.
We’ll cover a data-centric approach to understanding your competition, including:
- Part 2 — Competitive Landscapes
- Part 3 — Brand Recall
- Part 4 — Competitive Pricing
- Part 5 — Competitive Positions
The very first step in understanding your competition is to assemble a complete list of who the competition is and their vital characteristics. While that may sound easy, structuring the list in a way that helps you analyze what might be dozens of competitors is challenging.
To make it easy on you, here is a template that I have used for many years when analyzing the competition in various markets:
It can take a lot of time to gather enough data about your competition to build a complete landscape, so here are some shortcuts:
- Marketing: Since your competition is targeting the same customers as your business, they will advertise in the same places. Track ads on the channels where you advertise, and you should quickly have a list of your competitors.
- Finances: In the US, most companies are required to file with the SEC, which in turn makes this information public. You can do a quick search on the SEC website for any company to see what they have disclosed, which is usually a lot. This is true for both public companies — which need to disclose quarterly financial reports — and private companies, whenever they raise equity financing from external investors.
- Employees: Sites like LinkedIn make it easy to track how many employees work at a given company and when they hire new people as people often update their profiles when they change jobs. Never trust this data exactly, as not everyone will have a profile that is up to date, but it does give you a rough estimate. You can also check job listings to see how many new people a company is trying to add in the near future.
Having a comprehensive competitive landscape does more than just provide a clear understanding of your competition; it also allows you to track changes over time and put them in a larger context. If you see a number of competitors adding the same feature, raising more financing, or hiring a lot of people it can signal significant changes.
Most companies will conduct user testing of their products, where they watch customers use their products to learn more about how they work. Fewer companies do user testing of their competitors products, but if you aren’t already you should start. It’s an invaluable way to understand how your product works compared to your competition’s!
However, user testing will only help you understand a customer who already chose between you and your competitor. What you really want to know is how you compare in the minds of customers who haven’t yet made a choice, so you can ensure you are positioned favorably in their minds. This requires a data-driven approach, because you need a very large sample of potential customers to avoid misleading conclusions.
Collecting this data is done by surveying your customers, and there are two common forms: brand recall and brand recognition.
What is Brand Recall?
In a brand recall survey (aka unaided recall), you present respondents with a market or problem and ask them to rank list all the brands, products, and companies they know that match. The rank list is very important, as it tells you about which companies have the strongest position in the minds of people considering the space.
For example, if we wanted to test the brand recall for the Data Driven Daily we might send a survey with a question like the following:
Please list all of the newsletters that you know of that discuss the use of data in business:
If the Data Driven Daily consistently appears in the #1 slot, we are doing well! If it appears further down the list — or not at all — we know our brand is not as well-positioned against of the other entries.
By aggregating the results across all respondents, you can measure how your company measures up against the competition in the minds of potential customers. You can also measure the respondent’s interest in your market by the number of responses they provide. They may provide a dozen answers to something they care about, but only two or three for something that they don’t find interesting.
What is Brand Recognition?
In a brand recognition survey (aka aided recall), you present the respondent with a brand or product, and ask them to tell you everything they remember about it. This is a great way to tell if your marketing messages, value propositions, and differentiations are clear to potential customers. Typically, you would conduct brand recognition surveys for both your company and your competition in order to compare what people remember about each.
You can combine brand recognition and brand recall surveys by asking for more information about each item mentioned in a brand recall survey, but success depends on how much time you can expect your respondents to spend on your surveys.
Designing these surveys and analyzing the results are fairly straightforward, but the results are an invaluable look inside the minds of potential customers. If you need any help in building your brand surveys for both recall and recognition, see our series on Survey Design.
Knowing the price of your competitors’ products is critical information for running a successful business. Are your products more expensive? Cheaper?
One fact that complicates competitive pricing is, not all competitive products offer exactly the same features or capabilities. What you need are pricing benchmarks that take into account the variety of features, bundles and discounts to get to a real reference point for your pricing.
For example, let’s assume we run a car repair service. There is a lot of variety within our competition, as there are many different kinds of cars, services, and business models. As with any benchmarking, the first step in price benchmarking is to segment your competition to ensure that you can compare prices effectively. Let’s segment the competition for our car repair service in a way that will help make sense of pricing:
- What are they selling? Repair services that focus exclusively on oil changes will have lower prices, as they enjoy economies of scale. Full-service shops, on the other hand, can charge a premium for the convenience of a one-stop shop. You need to understand what the customer is buying for a given price, so you know how it compares to your prices.
- Who are they selling to? A repair service that services car fleets will have fundamentally different pricing than one that services consumer vehicles, because they can provide bulk discounts. Even if you are targeting the same customers, different customers in that segment may have different value propositions and spending capacity. The better you understand the specifics of that customer segmentation, the better idea of how you know their pricing compares to yours.
- What is their business model? Some repair services primarily provide service to insurance companies, which allows them to charge lower prices in return for more business. Others spend heavily on direct marketing, which drives down their contribution margins. Understanding how your competition’s business model works is critical to understanding how their pricing affects their model.
With those segments in hand, we can create a number of different benchmarks to compare our business. We might not care about how we compare to bulk-pricing for car fleets, or if we only service a certain car brand we might not care about others. You will likely end up with 2–3 benchmarks for the segments of customers that are most closely related to your business.
Whatever segments you choose, you can sanity check them by asking your customers what other providers were in their selection sets before they chose your business. Often, you will be surprised that indirect competitors pop up on those lists, and you can adjust your benchmarks accordingly.
Remember that the prices listed on a competitor’s website may not be the actual price the customer pays. There may be discounts, or the competitor may have other ways of indirect methods generating revenue (such as selling services or warranties along with the product). Interview customers (both yours and theirs) about advertised and actual pricing, to get better data.
It’s important to remember that, in business, you will not be the only one doing the analysis; your competition will be doing the same analysis on you! In fact, some of them may even be subscribers to the Data Driven Daily…
That isn’t actually as scary as it sounds. In a free market, you need to acknowledge that there are parts of your business you cannot hide. If you run your business well and build true competitive advantages (including data!), then you should be able to beat your competition even if they know everything you are doing.
While I recommend focusing on your own business instead of worrying about what the competition may know about you, there are a few practices to ensure you don’t give away too much information:
- Always disclose whatever is legally required in your financial filings, but avoid sharing any additional financial information with the press or external parties. Once the information is out there, you can never stop it from spreading.
- While it’s tempting to brag to your customers about how great your business is doing, remember that they speak to your competitors, even if they are your customer. Anything you tell them can (and probably will) reach your competition, so avoid sharing too much.
- If you test pricing promotions or discounts in specific markets before a wide roll-out, always rotate which markets you test. Using the same market for all your testing will make it easy for competitors to predict your pricing changes and promotions!
Some companies undertake deliberate misinformation campaigns to try and thwart competitive intelligence, but I do not find this useful. Instead, assume any information you expose to someone outside your company is public information and operate accordingly.
In Review: Competitive intelligence is a critical part of sound business strategy, but gathering and analyzing data about your competition is hard because few competitors share such data willingly. Even so, there are a number of techniques to gather data about how your company compares to the competition in pricing, brand positioning, and other factors. The more you use these tactics, the more likely you’ll be able to beat the competition.