What is a Competitive Analysis And How to Create One

Whether you’re a small business owner, freelancer, or seeking to improve your start-up‘s market share, competitive research is essential for business growth. Competitive analysis is one way of evaluating competitors’ strengths, weaknesses, and hold on customers.

Table of contents: Competitive analysis

• What is a competitive analysis?
• The main benefits of conducting a competitive analysis
• How to conduct a competitive analysis in 11 steps

What is a competitive analysis?

A competitive analysis, or competitor analysis, is a process through which you identify your primary competitors and compare their business strategies and performance to yours.

Conducting a competitive analysis for your business is very important—no matter how large or small your operation is—in order to reach your customers effectively and remain aware of other companies competing for their attention.

The main benefits of a competitive analysis

A competitive analysis can help your business:

• Craft a strong business plan
• Develop a unique value proposition
• Conceptualize and produce products and services popular with a specific target audience
• Establish positioning within a target market
• Set goals by which to measure growth
• Identify and target competitor weaknesses
• Find market gaps to fill with new products and services
• Create an effective marketing strategy
• Identify mistakes that led to competitor failure (and avoid them!)

While conducting a competitive analysis is a fairly involved process, its benefits are well worth the time spent researching and analyzing.

How to conduct a competitive analysis in 11 steps

The 11 steps below provide guidance on conducting a basic competitive analysis. Each step includes information about the analysis actions you’ll need to take, why they’re important, and what you can do with your findings. If you’d prefer having an expert help you with this process, consider engaging an independent business analyst .

1. Confirm specific goals and objectives of the competitive analysis

The first step in conducting a competitive analysis is to identify specific goals and objectives of your business operations that you want to evaluate.

Establishing specific goals up front helps you develop a plan for exactly what you’d like to analyze while examining competitors. You can also develop objectives that outline what you’d like to gain as a result of the analysis.

These goals and objectives may include both quantitative and qualitative metrics.

Quantitative metrics

A quantitative metric is one that can be measured using numbers. Examples of quantitative metrics include:

• Lifetime value of each of your customers
• Sales generated from an ad campaign
• Web traffic from organic search engine optimization efforts
• Clicks on links in social media posts
• Email marketing conversion rates
• Order fulfillment lead times
• Geographic service areas as measured in square miles
• Number of new clients acquired each quarter

Qualitative metrics

A qualitative metric can’t be directly measured like a quantitative metric. Instead, qualitative metrics involve thoughts, feelings, emotions, and reactions. Examples of qualitative metrics include:

• Reviews from your customers and those of competitors
• Audience sentiment toward your brand
• Customer trust in your company
• Results of focus group studies
• Employee satisfaction levels
• Regional perception of your brand’s quality
• Sentiments recorded during user experience testing
• Comments expressed in LinkedIn posts made by your target customers

These two types of metrics may be gathered and measured separately or together. Often, qualitative metrics are used to generate a hypothesis, with quantitative metrics used to test it.

How to use this information

Once you’ve gathered quantitative and qualitative data about your market, industry, customers, and competitors, you can use this data to create your goals.

For example, if you know you generated $15,000 in revenue last May, you may set a goal to generate 25% more revenue next May. This goal will be one factor that guides your planning as you proceed through the competitive analysis and gather more information.

2. Confirm your target market

Before you begin collecting quantitative and qualitative metrics, though, you’ll need to understand your market. When considering your market in relation to both your customers and those of competitors, consider each of the following:

Market size

Your market size refers to the number of people or companies who could be your customer.

At present, this audience’s loyalties may be split between you and one or more competitors. However, by using a competitive analysis to guide your business strategy and marketing tactics, you may be able to capture a larger portion of the total market size than competitors over time.

When conducting a competitive analysis, you can estimate your market size in one of three ways:

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• Demand-side method: Also called the bottom-up approach, this method also involves looking at data from multiple sources. While you started broad and narrowed your data using the top-down method, you’ll do the reverse when using the demand-side method.
  
  You may start with data about specific customers’ buying habits and add in data from other reports to build a bigger picture of a total market.
  
  
• Supply-side method: Rather than focusing on your market customers, you’ll need to focus on competitors first when using the supply-side method. To estimate market size using this method, you’ll need to find out (or make an educated guess about) each of your competitors’ sales volumes.
  
  You can then combine these numbers and work backward to develop an estimate of total potential customers in your market.

Market demand

Determining market demand allows you to confirm that there is an audience for what you’re selling, and that capturing a large enough part of the total market size will allow you to make a profit.

If you don’t establish market demand along with market size, you may find yourself entering an oversaturated market and trying to sell a product or service that people don’t want or need.

When estimating market demand, you’ll look at data points like the number of potential competitors in your primary market, their average sales, and qualitative sentiments expressed by your market in given regions.

Market trends

Market trends are patterns that happen over time on a repeat basis. Identifying these trends is the third step in getting a better understanding of your market.

To conduct a market trend analysis, you’ll need to look at your market’s purchasing changes over time. Look for:

• Spikes and dips in purchasing during certain periods
• A move away from or toward specific projects and products

To find this information, you may want to look at census data, business case studies, market research studies, and consumer polls.

How to use this information

Before launching a full-scale sales and marketing effort in a given area, you may decide to test your market demand estimates with a soft, or trial, launch. And, by understanding your market’s buying trends, you can target your efforts to the types of products and services (and price points) that your ideal customer is typically interested in.

3. Identify direct, indirect, and tertiary competitors

Understanding your competitors is a huge part of conducting a competitive analysis. While it’s easy to think of competitors as other businesses directly competing with yours, that’s only one type of competition you need to watch for.

Your competitive analysis should include a closer look at direct, indirect, and tertiary competitors. These three groups all have different impacts on your market, but are important parts of a proper analysis. Ideally, your list of competitors will include some from each of the groups defined below.

Direct

Direct competitors, also called primary competitors, are most similar to your company—they sell the same products or services to the same people as you.

Let’s say you own a bicycle shop in Austin, Texas, and sell to local customers. Your direct competitors will be other bicycle shops selling to bicyclists in the Austin area.

These competitors may be other local shops or online retailers who deliver to Austin. You’ll want to keep an eye on these competitors’ movements, as they’re most likely to capture part of your market share.

Indirect

An indirect competitor (also called a secondary competitor) is also similar to your company. However, this type of competitor either:

• Sells the same product or service to a different audience
• Sells a different product or service to the same audience

If you run a bakery that sells wedding cakes, your target market may be engaged couples who plan to get married in the next six months. While your direct competitors are other wedding cake bakeries, your indirect competitors may be:

• Catering services
• Event venues with on-site foodservice
• Grocery stores that are unlikely to sell wedding cakes, but sell other baked goods
• Baking and cake-decorating instructors that may appeal to people who like the idea of making their own wedding cake

Analyzing and watching your indirect competitors is worthwhile, as they may:

• Expand further into your market or update their product offerings to become a direct competitor—such as a catering service that begins offering wedding cakes.
• Be a source of data points that provide insights about other ways to serve your customers and market. For example, are your customers interested in other, nontraditional baked goods to replace a wedding cake?

Tertiary

Tertiary competitors are typically only tangentially related to your products, services, or market.

If you’re a tax preparation professional, a tertiary competitor may be a mileage-tracking app that allows traveling professionals to log their business miles and deduct them at tax time.

While mileage tracking in itself isn’t direct competition to your work—and even makes it easier—these types of software companies may decide to eventually move into more bookkeeping and tax services through expansion or acquisition of other companies.

How to use this information

You’ll want to analyze direct, indirect, and tertiary competitors to gain new insights about your market and related markets. The data you gather about direct competitors can be a valuable tool when developing your marketing strategy.

The information you obtain about indirect and tertiary competitors, on the other hand, can help you keep an eye on how your market continues to develop over time.

4. Evaluate company structure and financial performance

When researching your direct, indirect, and tertiary competitors, examine each of the following points:

• Company information
• Company size
• Existing market share
• Revenue
• Adjusted EBITDA
• Acquisitions

Company information

When you begin researching your competitors, take note of key company information, including:

• Structure: Are your competitors sole proprietors, small to medium size businesses, or large enterprises?
• Sales channels: Do your competitors tend to do business in person or online?
• Age: Are your competitors newer businesses, or are they older, well-established companies?

Company size

In addition to the company information listed above, you’ll also want to take note of how large your competitors are. Find out the following about your competitors:

• How large is their staff?
• Are they a subsidiary or a franchise of a larger company?
• Do they serve a regional, national, or global audience?

This information can help you better establish which competitors are the most important to focus on when planning new strategies.

Existing market share

You’ll also want to know how much of your market is held by each competitor.

To calculate market share, you need to divide one company’s sales by those of the entire market over a given time period.

For example, if your car dealership in Ontario sells 5,000 full-size pickup trucks in a year, and there are 130,000 total sales of similar trucks across all dealers in the province, then you hold 3.8% of the market share.

While you should have the sales information at your fingertips to do this for your own company, it’s harder to do for competitors as you probably don’t have access to their sales data. However, you can estimate their market share by looking at the total number of reviews from customers, social media posts featuring a competitor’s products, and industry benchmark reports.

Revenue

A company’s revenue is the amount of money it generates in a time period—such as a year—before deducting any expenses. If a company is publicly traded, its annual reports will provide data about revenue and profit.

For competitors that aren’t publicly traded, though, you’ll need to make some educated guesses. You might be able to gather data from records related to the sale of similar businesses in your market or talk to former employees of the competitor.

Adjusted EBITDA

EBITDA stands for “earnings before interest, taxes, depreciation, and amortization.” While revenue is a marker of total company sales, adjusted EBITDA gives you a better idea of actual profitability. A company may have high revenue, but very low profit depending on their debts and expenses.

The formula for basic EBITDA is net income + taxes + depreciation + amortization. Adjusted EBITDA also includes additional, non-standard expenses that occurred during a given financial period.

This metric is often tricky to estimate, especially if your competitors are not publicly traded. Working with an accountant, financial analyst, or fractional CFO can be a great help when you’re trying to figure out these numbers for your competitors.

Acquisitions

If your competitors acquire other companies, they may more rapidly move from indirect to direct competitor status. Or, a direct competitor may simply obtain more market share and make it harder for your company to compete.

How to use this information

By combining all of the information above, you’ll get a more holistic overview of your market and begin to better develop your positioning for a competitive advantage. You can also better develop your financial strategies to compete with (or even acquire) your top competitors.

5. Understand your competitors’ marketing strategies

Your competitors’ market share is further enhanced by their marketing strategy. If a company with a small market share effectively analyzes the competition and launches a great marketing campaign, they may be able to acquire customers from their competitors.

Therefore, it’s important to understand your competitors’ marketing strategies and tactics. Doing so will give you insights as to what is and is not resonating with customers and help you plan equally competitive campaigns.

Market positioning

Market positioning is the way in which a company positions itself as a viable (and attractive) alternative to competitors. Examples of market positioning include:

• Promoting your hotel as a luxury destination
• Marketing your restaurant as a healthy alternative to other chains
• Advertising your equipment as safer and more reliable than alternatives

You’ll want to research and take note of the way your competitors position themselves in the market.

Online presence

Your competitors may use a variety of digital marketing channels to connect with people in your shared target market. Evaluate each of the following when examining the competitive landscape:

• Website: Tools like Ahrefs and Semrush help you get an idea of the traffic going to your competitors’ websites. Backlinks are also useful to see what sites are connected to theirs.
  
  
• SEM presence: A company’s search engine marketing (SEM) presence refers to the pay per click (PPC) ads they may be running through search engines. These ads operate on an auction-style bid model.
  
  
• SEO presence: If your competitors have a strong SEO presence, they are likely to be ranking on the first search engine results pages (SERPs). You can use the same tools you used to estimate website traffic to see what keywords your competitors rank highly for.
  
  
• Content marketing: Original, informative content is a big part of having a strong SEO presence. Familiarize yourself with the types of content that your competitors are creating and publishing on their website or through online industry publications.
  
  
• Email: Even if your competitors aren’t appearing high in SERPs, they may be generating sales and leads through a strong email marketing effort.
  
  Two approaches are useful for getting an idea of your competitors’ email strategies—either sign up for their marketing emails yourself or search for their promotional content on sites like Milled. These sites collect marketing emails and are often great ways to get inspiration for your own campaigns.
  
  
• Social media performance: As with email, a strong social media presence can help your competitors gain market share. Pay attention to which social media platforms your competitors are using and look at their total followers and general engagement rate on each platform.
  
  You don’t have to use every social media outlet available to you—just the ones where your target market tends to gather.
  
  
• Podcasts: More than 160 million people are expected to be podcast listeners in the U.S. alone by 2023. Companies can tap into this large audience by creating their own branded podcast, encouraging their leadership teams to appear as guests on other industry programs, or buying ad placements on podcasts their target customers listen to. Check out what kinds of podcasts your competitors are creating or appearing on.

Traditional marketing presence

While some companies will have an online-only marketing presence, many businesses still use traditional channels like:

• Direct mail: A form of targeted advertising, direct mail involves sending letters or flyers to every address in a specific area. In the U.S., direct mail services are typically arranged through the post office.
  
  
• Radio: Terrestrial radio (i.e., not satellite or online stations) reaches as many as 82.5% of adults in the U.S. This means radio remains an effective marketing platform for businesses targeting a specific geographic region.
  
  
• Television: Much like radio, television ads may be used on a national or local basis. The type of ad run will depend on budget, market, and industry. Even if your company does not yet have the budget to run widespread television ads, take some time to familiarize yourself with competitors’ ads. This is yet another helpful data point for identifying how they are connecting with their customers and obtaining new ones.

Brand presence and value

Not all marketing efforts are effective. In addition to determining how your competitors are marketing their products or services, you’ll also want to assess how these messages are received. Look at customer reviews, industry reports, surveys, and media publications to get ideas for the following:

• Brand Perception: How are competitors’ brands perceived throughout your shared target market?
• Brand Strength: In what areas are your competitors’ brands particularly strong? Are they known for something specific?
• Brand Weaknesses: Where might your competitors be experiencing a brand weakness?
• Brand Messaging: What kinds of messages are your competitors putting into the market? This includes both their method of positioning and the medium through which they do it.

You are also likely to gain more insights about these areas when conducting your own customer research.

How to use this information

After evaluating your competitors’ activity in each of the areas above, you might decide to:

• Establish if they are making claims you can counter with your own market positioning efforts
• Identify gaps to fill with new products and services
• Create content to compete with your competitors on specific organic keywords
• Run PPC campaigns on the same keywords as your top competitors
• Develop a podcast strategy for your business
• Contact the post office to run a direct mail campaign targeting your competitors’ main service area
• Work with a radio company like iHeart to run ads targeting a local or national audience
• Engage the services of an independent public relations specialist to help your company get valuable placements across news outlets and other media

6. Review competitors’ pricing and promotions

Once you’ve established whom your competitors are targeting (and how, through marketing), you’ll want to review their pricing strategies and advertised offers. This can include:

• Customer loyalty programs
• Regular pricing
• Sale pricing
• Seasonal and annual promotions

How to use this information

Maintaining competitive pricing with your competitors can be an essential tactic to:

• Draw in new customers
• Win back former customers who moved to a competitor
• Build customer loyalty

You could decide to approach competitive pricing in several ways, including:

• Offering to match prices on similar products from competing businesses
• Creating a loyalty program that is comparable to those offered by competitors
• Developing a new-customer offer involving your most popular services or products
• Running holiday sales or other one-time promotions to match competitors’ strategies

7. Use a SWOT analysis to consolidate data

A SWOT analysis looks at strengths, weaknesses, opportunities, and threats.

Strengths

Starting with the strengths you uncovered in step five, dig deeper into how your competitors are succeeding in your market. This success may be as a result of their own efforts or due to low competition and unfilled gaps.

Weaknesses

Continue to build upon the work you did in step five by further evaluating competitor weaknesses as well. How does one competitor’s weaknesses correlate to another’s strengths? Have any competitors made mistakes you can learn from?

Opportunities

As you move through your research, group all possible opportunities together and review the data. Consider what opportunities your competitors might be likely to pursue or have at their disposal. This could include:

• New product development
• Winning new customers through promotional offers
• Marketing campaigns
• Public relations efforts
• Influencer partnerships

Threats

Finally, look at what threats currently exist in the market. Consider the following:

• What threats are your competitors facing, and how have they responded?
• What threats exist for new entities entering the market?

How to use this information:

Once you’ve conducted a SWOT analysis focused on competitors, conduct a second SWOT analysis focused on your company. While you think about your own strengths, weaknesses, opportunities, and threats, consider the following:

• How can you position your company as a viable alternative to competitors?
• Are there any unfilled needs in the marketplace?
• Do your competitors have a weakness you can market your products and services against?
• Do you have a weakness that competitors are likely to target?
• What opportunities do you have available to you that your competitors do not? How can you leverage these opportunities?
• What threats might you experience when trying to expand your market share?

If you’d like help conducting a SWOT analysis, you can get help from a market researcher via Upwork’s Project Catalog.

8. Evaluate competitors’ tech stacks

When evaluating your competitors, consider the tech stack they’re working with. Tech stacks often include:

• Customer relationship management (CRM) systems
• Content management systems (CMS)
• Social media marketing tools
• Project management software
• E-commerce cart management systems
• Email marketing and retargeting software
• Customer service tools and systems
• Payment processors

You can find information about competitors’ tech stacks by looking in their help documentation, talking to their customers, and using tools like BuiltWith—plug in a competitor’s website, and it’ll show you the platforms and services they use on your website.

How to use this information:

Researching the tools that your competitors may be using can help you:

• Build a tech stack that meets industry standards and remains competitive
• Identify opportunities to offer better support to customers through technology
• Offer a higher grade of payment processing compliance and information security
• Automate portions of your workflow for more efficient service

9. Interview customers

One of the best tactics used when conducting a market analysis is to speak directly with your competitors’ ideal customers and target audience. This may involve talking to existing customers as well as potential customers—people you have identified as a good fit for your products or services.

Product research

By talking to your competitors’ target customers, you can glean information about other companies’ products, pricing, and customer satisfaction levels.

Product research questions to ask include:

• What companies do you currently use for your business needs? Do you work with (competitor)?
• What is your current satisfaction level with (competitor’s) product or service?
• What product features or services would you like to see (competitor) or a similar company offer in the future?
• Do you have any needs that are not currently addressed by products or services available to you?
• Why do you choose a specified product or service over another competitor’s offering?
• Why do you typically shop or work with (competitor)?

Brand research

It’s important to conduct brand research in addition to product research. Brand research provides valuable insights about how a target market perceives competitor brands.

Brand research questions to ask include:

• How do you perceive (competitor’s) brand?
• What level of trust do you feel in (competitor’s) brand?
• In what order do you prefer to use (relevant brands) to meet your needs?
• Have you ever experienced a problem with (competitor’s) brand? Was your issue resolved satisfactorily?

You can also conduct additional brand research by:

• Monitoring customer reviews
• Reading reviews of competitors’ businesses
• Taking note of awareness campaigns launched by competitors

Website usability research

Conducting usability research is a great way to figure out what is and is not working for your audience as they navigate through competitors’ websites.

Website usability research questions to ask include:

• Do you find it easy to use (competitor’s) website?
• Have you had trouble finding answers to your questions?
• Do you understand how to use their customer portal?
• What information do you wish they had available to you online?
• Do you use online tools to manage your account?
• Have you recently accessed a self-service help portal?

How to use this information

Using the information that you gather about competitors’ websites—and how customers feel about the user experience—you can make changes that will improve the overall user experience of your company’s website.

You can also use customers’ product responses to determine if you need to develop new services, improve or add functionality on existing products, or address a gap in the market.

10. Distribute data to key stakeholders

A competitive analysis is only beneficial if you share the data with key stakeholders who can make decisions about how to use it. This may include:

• Sales leadership team members, who may adjust their territory distribution and leads based on competitor footprints and performance
• Marketing experts who might review existing campaigns and make adjustments in order to remain competitive across target markets
• Investors who are interested in seeing how the competition is performing and establishing expectations for your company’s potential growth
• Financial officers who may use competitor and marketer analysis data to adjust departmental budgets across the company

Follow-up step:

Plan to follow up with stakeholders via email or a scheduled meeting in order to discuss ways in which your company will use the information contained in your most recent competitive analysis. By regularly meeting, establishing ways to track your progress, and planning for next steps, you can get the most value possible out of a competitive analysis.  

11. Continue to run an analysis quarterly

Running a competitive analysis isn’t a one-time event. New competitors may enter the market, and existing competitors may move from being indirect or tertiary competitors to being direct ones.

As a result, best practice involves running a new analysis at least every six months, if not quarterly. By keeping your knowledge of competitors up-to-date, you’ll be able to continue to refine your market positioning and promotional strategies. In turn, these actions can help you retain and grow your market share.

Running your first competitive analysis

Running a competitive analysis is a big undertaking. Getting help from experienced, independent business analysts, market researchers, and advertising specialists can help you get a better understanding of your competitors—and how to grow your market share. Get started working (and marketing!) more effectively by posting a job on Upwork today.