The process of determining if a discernible advantage exists over a competitor will require you to ask questions about your competitor and perform the first two parts of a SWOT analysis. SWOT analysis is an acronym that means examination of a business in terms of its Strengths, Weaknesses, Opportunities, and Threats. The first two parts of this examination, strengths and weaknesses, are the external components that belong in a competitive analysis. External refers to looking outward for the purpose of scanning the external environment to assess the competition in the context of your own business. The latter two components, opportunities and threats, are initiated in business planning when you define the products and services (chapter 3), and the purpose is to ask questions about what opportunities are available for the business. The underlying rationale is determining what you can do successfully in either or both areas in a strategic context. In other words, opportunities and threats are the internal cornerstones to help a business develop a preferred future. You will recall that chapter 3 sets out the best practices to ensure that the opportunities component of SWOT analysis is carefully addressed. Threats require you to determine how you will respond to them, and these strategies are found in the chapter that addresses risk assessment and protecting your assets (chapter 10).
A competitive analysis is, therefore, a systematic gathering, organizing, and evaluating of the strengths and weaknesses of a specific business together with its competitors for the purpose of determining if a competitive advantage exists. The criteria employed to carry out the analysis will vary based on business type and the primary product or services it will offer.
Identifying the competitors is the first step. It may not be as simple as it might appear at first glance. If a detailed market analysis has been completed, it should be evident that the interests, preferences, and expectations of the customer will define what constitutes the competition. Thus, competition does not just arise from a list of identical "business types" in the vicinity. In the case of your sister, her focus should be on distinct benefits and amenities appealing to most B&B customers. An example might be a combination of personalized service and a memorable homestyle breakfast not present in other B&B operations. Assume that a cursory inventory of accommodations in the vicinity reveals a small rustic inn offering an individualized decor, a personalized service, and a kitchen area where travelers can put together their own breakfast in the morning. Although this inn is not a B&B, it may very well be a competitor for the type of experience noted in the B&B customer profile. Therefore the inn would be included in the competitor analysis.
The first step in using the worksheet is the identification of competitor A, competitor B, and so forth as noted on the top line of the form (figure 5.5). The next step is to obtain information about each competitor for the appropriate evaluation criteria in view of your type of business. Essentially, the task is to know as much about their businesses as you do about your own. Printed material and the Internet will display what the target audience is able to examine when considering the purchase of a service or product. Other approaches involve familiarization with competitors at trade shows or putting on the "silent shopper" hat at a competitor’s place of business. The objective is to see what is offered and the quality of the service. Some of the options for accomplishing this step are now briefly outlined.
Attend Trade Shows or Local Business Fairs
Competitors attend trade shows and local events to display their product offerings and to network with other businesses and suppliers. An observer at the trade show should focus on the message of the competitors and how they sell or market themselves. Trade show publications and materials often provide insights into pricing, length of time in business, advertising strategies, image, and their expertise in the trade.
Be a Customer
Every establishment listed in the AAA/CAA Tour-Book is evaluated by their inspectors. The inspectors arrive unannounced and silently evaluate the business on each of the criteria created for its one- to five-star rating system. In a similar manner, business owners can themselves hire a firm (e.g., www.mystery-shoppers.com) to evaluate various aspects of their business to improve customer service and to recommend strategies for staying ahead of the competition. If you are a new business owner, it is feasible to become a silent shopper and visit a competitor’s place of business or conduct a "customer" inquiry over the phone. Draw your own conclusion about the benefits. Your sister may wish to stay at a local B&B in order to gain knowledge firsthand about business practices and level of service. To apply such criteria as quality, appearance, services, or expertise, it may very well require firsthand knowledge of a competitor’s enterprise. As for your prospective business, you have the advantage of knowing segments of the cycling population (e.g., road racers and BMX riders). Although it may be helpful to "shop" at other bicycle stores, you have the opportunity to collect information based on that prior experience and active participation with elements of the target market.
Talk With a Competitor’s Customers or Suppliers
As an alternative to a direct visit, information can be gathered based on conversations with the customers or suppliers. Discrete observations by the customers and the business network within the service sector can address questions about service quality, pricing, location, and so forth.
Go to a Franchise Show and Talk With Vendors
Most likely, you will not be specifically interested in the type of franchise a vendor has to sell, but vendors are very familiar with what is going on in the consumer market. They have to stay on top of trends, growth markets, and consumer behavior, so they carry out detailed assessments with certain local market areas or territories. Treat the vendors to coffee and chat about what they think about openings in the market of interest to you or needs your competitors don’t fill. They are likely to provide suggestions that will assist in assessing competition since it is central to what they do for people purchasing a franchise from them.
In the course of gathering information, the goal is to have sufficient detailed information to answer most of the following questions:
- What is my competition doing right? Can I duplicate and improve on it?
- Do I have something to offer that my competitors cannot, or do not, offer?
- How can I differentiate myself from the competition?
- Does it appear that the target audience is growing and expanding?
- Is it evident that I have a competitive advantage in one area or another?
Organizing the information means placing it in your worksheet so that you can uncover a competitive advantage. A competitive advantage can mean drawing on the assets, special features, and resources of the business to put in place the operational practices and marketing strategies that distinguish you from your competitors. The process involves answering the previously noted questions as well as examining the criteria contained in the competitive analysis worksheet. The number of individual cells in figure 5.5 to be completed depends on how many competitors are evaluated and the number of criteria used in the analysis. The 14 items in the worksheet are examples only, and the left-hand column should reflect the most relevant criteria in light of the type of business being examined. When feasible, criteria should be based on benefits sought and amenities, not simply demographic or psychographic variables. Of course, it is the customer’s preferences and values that are most relevant here. If you provide services rather than a product, then the criteria in the worksheet should focus on service-oriented criteria.
This exercise will help you discover just what you might focus on as a competitive advantage. The question you are trying to answer is if you and your competitors offer the same service for the same price, would it make any difference to the customer whom they bought from? If "individual and personalized service" is important, and it is not the same among the competitors, then perhaps a competitive advantage exists.
Evaluating the Data for Analyzing a Competitor
As an illustration, assume two B&B competitors should be included when filling in the competitive analysis worksheet for your sister’s business venture. She chooses to simply use a plus (+), minus (-), and no difference (=) rating system for comparing the competition. After doing her preliminary worksheet, several of the criteria are dropped because there is no difference (=) between what she intends to do and the primary features of the competition. The distinction she made in the case of one competitor relates to the B&B operator who lives in a separate home a block away from his B&B operation. He hires a housekeeper to come in and help with breakfast and daily maintenance. You could conclude that this is not customer friendly and enter a minus (-) in the service category because market analysis reveals that B&B customers value personalized service and direct contact with their resident host. Customers have indicated that getting to know their host, having access to information about the community, and being a guest in someone’s home is an important part of the B&B experience. Your sister plans to live in her B&B and definitely provide individualized contact with her guests. In turn, she believes this will be a competitive advantage for her.
Eliminating a Competitive Advantage
When a competitive advantage is documented, the follow-up question to consider is whether you, or your competitor, can readily duplicate what created the advantage and thereby eliminate what was initially considered a competitive advantage. When the competition sees that you have something going for you that creates an advantage, it will not be long before she looks for a strategy to neutralize or eliminate the advantage you enjoy. But if the competitive advantage is location and exclusive product line (e.g., your bike shop), it will not be easy for your competitor to duplicate either of those factors. Your sister’s competitor would have to sell his other home and move into the B&B in order to provide the on-site personalized service your sister has noted as an advantage she enjoys. That is not likely to occur, but it could and thereby change the rating to "no difference" across the board.
Identifying competitors and organizing information about them are critically important. A first step in a competitor analysis is identifying distinguishing benefits and amenities criteria that your target market is looking to receive. Gathering information on competitors can be achieved through attending trade shows, being a customer, doing Internet research, and talking with suppliers. Competitor data are organized into a worksheet or matrix. Your purpose is to identify a competitive advantage you might have among your top competitors.