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How Well Do You Know Your Competition?

Know Your Competition in BusinessWhen asked how well they know their competition, most business owners respond by naming direct competitors. Knowing your direct competitors is important, but it's not enough. Your direct competitors do not represent the entire competitive landscape facing your business, service or product. A myriad of other dangerous competitors are lurking out there. To succeed in the long term, you must identify, analyze, then differentiate from them.

Have you identified all of your competitors?

Competitors should be grouped into one of four categories:

  1. Current Direct Competitors - these are the companies, products or services that your business battles day in and day out. They provide the same types of products and services as you do to meet the same needs of the targeted customer base. If you were the proprietor of a sandwich shop, your direct competitors are other sandwich shops in your area. These competitors are the easiest to identify and track. 

  2. Current Indirect Competitors - these are the companies, products, or services that you may also recognize as competitors. Indirect competitors provide different products and services than you do to meet the same needs of the targeted customer base. Continuing with the sandwich shop example, your indirect competitors would be the Chinese food restaurant down the street or the hamburger stand on the corner. Each serves the same need as you do (feeding hungry people), but they do so with different products and services.

  3. Potential Direct Competitors - these are the companies, products or services that at some point in the future will enter the market. A potential direct competitor could be the opening of a new sandwich shop location by a national franchise. It is important to stay connected in your community and follow the news to learn as quickly as possible about the entry of potential direct competitors to your market so that you can adjust your competitive strategy as needed.

  4. Potential Indirect Competitors - these competitors are sometimes the most difficult to identify. Potential indirect competitors may employ an entirely different business model to serve the needs of the same customers that you target. An example of this is the company NetFlix. NetFlix reinvented the model for video rentals, first with its delivery by mail service, and again with its streaming movie service. Video rental market leaders like Blockbuster Video and Hollywood Video didn't recognize and respond quickly enough to the competitive threat posed by the NetFlix business model and application of technology to make the video rental experience more convenient for consumers. By continually staying on top of developments within your industry, and within technology, you will be able to identify the potential indirect competitors that could radically change your business.

Do you know the strengths & weaknesses of each competitor?

Once you have identified your competitors using the four categories above, conduct a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis on each competitor. SWOT analysis will help you focus on each competitor and identify areas where you may have an advantage. Seek ways to turn your weaknesses into strengths relative to your competitors. In other words, if your competitor is larger than you are, your strength could be that you provide more personal attention to each client and are more willing and able to adapt to each client's unique needs, while your competitor is too large to be responsive. 

Do you know how your target customers perceive your business, service or product relative to the competition?

If not, ask! Talk to your customers. Ask them to rank which features of your business, service or product are most valuable to them. Then ask them to rank how well your business, product or service delivers that value relative to the competition. You may be surprised at what you learn.

When you know what features your customers value most -- and understand how customers view your delivery value compared to that of your competition -- you have a clear picture of your position in the market and you can successfully differentiate yourself from competitors.

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