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4 Min. Read

Competitor Analysis Definition & How to Do Guide

Competitor Analysis Definition & How to Do Guide

When starting a business it’s imperative to understand your competition.

It’s incredibly rare to enter into a market with no major competitors. If there’s an idea to be had, someone is already out there doing it. But this doesn’t have to be a bad thing, because you can use the path they’ve trodden to learn from their mistakes.

This is where competitor analysis comes into play. But what exactly is competitor analysis? We’ll look at the definition and give you a handy ‘how to do’ guide to help give you a head start when starting your new business.

Here’s What We’ll Cover:

What Is a Competitor Analysis?

How To Do a Competitor Analysis

Key Takeaways

What Is a Competitor Analysis?

A competitor analysis, also known as a competitive analysis, is a business analysis tool. It is used to understand your competitors and the market you’re entering into.

This helps businesses open up new opportunities through thorough research and analysis.

The information gleaned from a competitor analysis can be used to inform your marketing strategy. It can also help you to select the right business tools and help you to design new product lines to distinguish you from your competition.

Competitor analysis is a great way for a new business to go into a market backed with research and knowledge. But it’s also an effective business tool for pre-existing businesses to grow and adapt.

How To Do a Competitor Analysis

When undertaking a competitor analysis, there are four main steps businesses can utilise. This is to make sure their analysis is as widespread and effective as possible.

These steps are as follows:

1. Identify Your Current Competitors

In order to analyse your competitors, you first have to figure out who they actually are.

The key here is to put yourself in the shoes of your target market. What is the journey that your target audiences will go through in order to find you or your direct competitor?

Let’s say that you run a hairdressing business in Surrey. Most people will tend to use a search engine to find businesses in their area. So a quick google search for ‘Hairdresser in Surrey’ or ‘Surrey Hairdressers’ would bring up a number of businesses with an online presence that fit this criteria.

Through a number of different searches, you should be able to create a list of the most popular, or frequently appearing, businesses in your area. These can then be identified as your competition.

2. Analyse Your Competition

Now that you have your list of competitors, you should do a full analysis of everything they have to offer. Things to look out for include:

  • Background
  • Location
  • Products and services
  • Marketing and branding
  • Sales
  • Workforce

This should give you a good idea of what you need to do in order to succeed. It also helps you to come up with an idea of how you can differentiate yourself from the competition. This can potentially help you to find an untapped niche or market.

3. Segment Your Competitors

Once you’ve gone through extensive research, it’s time to categorise the different types of competitors:

  • Primary Competitors: These are your direct competitors. They have the same target market as you and offer similar services or products. These are the businesses that you will need to keep a close eye on.
  • Secondary Competitors: These indirect competitors are similar to yours, but differ in a number of ways. They might be in the same industry, but offer different products for example.
  • Tertiary Competitors: These are potential competitors that may have similar products or services. But they will not appeal exclusively to your target customer.

4. Develop Your Plan

Once you’re armed with all of this information, it’s time to create a plan.

Figure out how you can use the information you’ve gathered to set your business apart from your direct competitors. Is there a niche market they’ve missed out on? Can you offer the same product with a different pricing strategy? How can you use their weaknesses as your strengths?

Key Takeaways

If you’re just entering the market or want to develop and grow your business, a competitor analysis is a very effective tool for business owners.

It can help with long-term planning, understanding market and industry trends and help bring about a competitive strategy to grow your customer base and business.

Are you looking for more business advice on everything from starting a new business to new business practices?

Then check out the FreshBooks Resource Hub.