In competitive analysis, focus on the questions, not the tools
For so many of us, the words “competitive analysis” make the business school professor in the back of our head start screaming, and send us running for our favorite tools and acronyms. SWOTs, Star Models, Bubble Charts…
STOP IT!
When we focus on the tools, we are forced to fit complex problems, data, and real world realities into neat little boxes. It puts the focus on the tool itself rather than the problem we are trying to solve.
Tools will only help you come to the right conclusions if you are asking the right questions.
Put the SWOT away (for now) and focus on answering the questions of what your customers need and how you are going to serve those needs better than anyone else.
Focus on the customer first
How are you serving your customer’s needs? How are you doing it differently than your competition? How are you serving those needs in the same way as your competition?
If you are using competitive analysis as a process to determine ways to grow your organization, the right questions to ask are not about market share or product variance. Your questions should be focused on who your customers are and how you can differentiate to better serve their needs.
As part of this, you must be honest with yourself about who your customers are. Not every potential customer is right for you, so focusing on market share is pointless when, for example, only a third of the market is actually made up of people you’d like as customers. Before trying to understand the other businesses courting the patronage of your customers, your competitive analysis should understand your customers themselves.
How do your ideal customers behave? What interests them? What inspires them? What makes them say “Cool!”. Most importantly, what makes them act and buy your product?
Having answers to these questions provides you the appropriate context to compare and contrast your business with that of your competition. Unless you know the preferences and tastes of the customers you’re trying to attract, it is impossible to compare your organization’s strengths and weaknesses with your competition.
A great example of a company that understands who their customers are is Momofuku’s Ko. It’s a generally held principle in the restaurant industry that quicker service is better service and allows your business to make more money by serving more patrons. Ko turns this concept on its head. The restaurant charges a premium price ($195 per person) and asks that you allow at least two-and-a-half hours to enjoy your meal. Without the context of who Ko’s customers are, you’d consider this price and speed of service to be a very definite weakness.
But Ko is not trying to target every possible customer with their restaurant model. They are targeting the customer that sees eating as an experience to be enjoyed, and they tailor the Ko restaurant experience around this.
At most other restaurants, 2-hour service would be a death sentence, but at Ko this time to relax and enjoy your meal with no rush or pressure is a strength to their business model.
Defining your competition
Direct competitors
Your competitors will generally fall into two categories: Direct competitors and indirect competitors. Direct competitors are those who produce products or provide services in the same market space as you. Keep in mind that many companies compete in more than one market. This may require you to do more than one competitive analysis and develop unique competitive strategies for each of these markets.
To identify your direct competitors you must be clear about the market you’re competing in. Markets are first and foremost defined by the services or products being offered, but can also be defined or refined by geographic boundaries and business models. While a global economy is changing the way we view geographic boundaries and limitations, most organizations still can’t serve the needs of customers worldwide.
Service companies, such as general contractors, are a great example of this. Many operate on a local scale as the costs of travel, equipment, and management of employees in multiple cities and states are prohibitive to large scale operations. Even those that have managed to scale up through sound operational practices are rarely able to scale to a size where they are able to be more than regional players.
As such, general contracting markets are dictated as much by geography as by services offered. Focusing on “competitors” in New York when you work out of San Francisco will just distract you from the true competition in your own backyard.
Being realistic about geographic or other service boundaries will help you to better identify your closest competition, as well as growth opportunities.
Indirect competitors
Identifying your indirect competitors can be just as important, particularly when you are looking for new opportunities that may be present. Your indirect competitors are those who operate in a different market than you and offer a substitute product that may be chosen instead of yours.
For example, the furniture industry is often broken down into markets based on the materials used to construct the product. So one market may be defined by solid wood as the primary material. Players in this market need to be concerned with their direct competition from other companies making solid wood furniture. However, they should also be tuned into their indirect competitors making furniture out of other materials, such as metal.
From there, an astute business leader may ask, “Why are customers choosing to buy metal furniture instead of our solid wood pieces?”
A plausible answer to this question (which you should back up with sound market research) is that modern furniture is popular right now, and metal materials provide that modern feel. The same astute business leader may take this new information and design a solid wood furniture line with a cutting-edge modern feel to create new market space for the company.
Don’t get distracted by market share
Despite what the name may imply, your goal in competitive analysis shouldn’t be to determine if your organization is better or worse than that of your competition. It’s not about who has the bigger pockets or share of the market. Competitive analysis is about figuring out what openings in the market are ripe for the taking and how to serve that segment of the market better than anyone else. Even the biggest companies with large mass appeal (think Apple or Nike) can’t be everything to everyone. It’s okay to be more focused if you are meeting your target customers’ needs in a better way.
You’ll most definitely gain market share in the process of targeting and developing these market openings, but more importantly you’ll carve out a chunk of the market that’s loyal to you and will trust your brand (and insure you long-term profits) even as the market evolves.
Where your competitive analysis tools belong
There’s still a place for all those analysis tools you relied on for so long, but it’s not at the start of your competitive analysis. Once you’ve asked the right questions and dug deep into your customer’s needs and how you can serve them better than anyone, these tools are a great way of organizing your research and answers in a high-level way that’s easy for your internal team or client to digest.
So please, put the SWOT away, stop focusing on market share, and give your customer’s needs the attention they deserve.
This article was originally published on LinkedIn Pulse.
