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Competitive analysis – why is this tool so important?

You may ask yourself why firms should analyze other companies, since they are not directly involved with one another. According to the old saying “Everything flows” (lat. Panta Rhei) or “The only constant is change” they should not only notice changes around them, but also around their competitors. With the help of a competitive analysis, companies can examine all of the important factors that influence the target market. In this way, managers are able to understand – and in the best case – predict the strategies of the competitors, for example in the case of changes in the market. Thus, companies can conclude what they can improve or change.

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Generally, competition is a natural phenomenon of rivals where only the strongest survives. The situation in the market is similar. Nowadays, companies acquire a competitive advantage by creating offers that meet the needs of a potential customer better than the offers of their competitors, so there is a constant rivalry between competitors. If the company conducts a good analysis of the market, its further actions will have more success in most of the cases. Furthermore, the best competitors have the power to create prices (market makers) and secure a big share of the market for themselves. In today’s highly competitive market, an analysis of the rivals is very important, because it is the foundation of a company’s future.

One of the most famous examples of long-standing rivalries is the rivalry between Coca-Cola and Pepsi. Their rivalry has been going from the late 20th century, and ever since then it is visible in the media or in the social networks. Coca-Cola has reported earnings much higher than Pepsi, but Pepsi has higher revenues thanks to its wider range of offered products and services. Another example of constant rivalry can be found among smartphone manufacturers. New technological innovations are being launched on a daily basis and smartphone manufacturers compete on price, design and quality. To achieve a competitive advantage, it is necessary to monitor trends on a daily basis and to respond to the needs of the market, which is a particularly demanding task in the fast fluctuating market. Globalization contributes to greater competitiveness and market liberalization.

A competitive analysis should be an integral part of every business plan, because it not only allows a company to have a better position at the market and to develop a better marketing strategy, but it also enables to predict some future outcomes. A good analysis takes a lot of effort and time, however, in the long term it will be profitable for the company.

There are many different methods to analyze your competition. To start a good analysis, it would be advisable to identify the following points:

  1. Current and prospective competitors of your business
  2. Their goals and strategies
  3. Their strengths and weaknesses
  4. Type of media they have used to advertise their products or services
  5. Potential threats and opportunities which competitors pose (based on the SWOT external analysis)

Information about the competitors can be gathered by analyzing their ads, advertising materials, suppliers, customers and employees, customer feedback and so on. The SEO analysis is often used for the analysis of the competitors’ websites: by using specific keywords you can see how good the company is rated in the web. The better the ranking of a certain website on the internet, the higher is the number of visits and more conversions of potential customers into clients. SEO optimization can show, for example, strength of competition, popularity of certain themes and of primary and secondary keywords. It can also list the websites that work actively on improving their position and it can estimate how successful those improvements are. Such a strategy is used by companies in order to outrun the competition.

Therefore, a competitive analysis is a really useful tool for marketing and for further development of strategies. The point of competitive rivalry is to learn constantly through the comparison with the best in your field and to use the gained knowledge to stand out in the best possible way.

Lucija Juricev-Sudac

This blog has been written by our Worldcom partner agency HBI.

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