Competitive analysis: What is it and how to conduct one

Floris van der Pijl
Published on
December 7, 2022

To stay competitive, you can’t just look at your own performance. Checking the facts and seeing how your competitors perform is crucial for your strategy. Analyzing your competitors will help you stay up to date. So, what is a competitor analysis and how do you conduct one?

In this blog, you’ll learn the 4 steps for a thorough competitor analysis. The goal is to:

  • Identify gaps in the market
  • Uncover market trends
  • Market & operate more effectively

What is a competitive analysis? And, why is it important?

In a competitive analysis you identify your direct and indirect competitors and analyze their performance to gain insights into their strengths and weaknesses. Once you understand their capabilities versus your own, you can plan your next move.

What you want to avoid, is to get stuck in preconceived ideas about your competitors and the market landscape. That’s why a competitive analysis is so important. By analyzing the competition, you will spot potential advantages and barriers within the market. It gives you the tools to be proactive instead of reactive.

How to conduct a competitive analysis?

To conduct a competitive analysis, we advice to follow the following 4 steps.

Step 1. Select your competitors (or: build a list of competitors)  

It might sound simple, but one of the most important steps is to find the right competitors to compare your company against. You want to work with a diverse set of peers to be able to get most out of your competitor landscape.

The competition you choose should have similar product or service offerings and a similar business model. You should also choose a mix of both direct and indirect competitors to be able to see how new markets might affect your business. Choosing both start-up and experienced competitors will further diversify your analysis.

Questions to ask yourself:

  • Which companies are targeting the same customers?
  • Who provides a similar product or service?
  • Who are the market leaders in your niche?
  • Which companies are dominating the local conversation?

New entrants might be interesting to look at as well, though it is hard to make a good comparison, because their numbers are not always there yet. Look at them from a qualitive perspective: what new trend do they focus on? And are there already more settled companies copying what these newbies do? It gives you insights into (future) market developments.

A-INSIGHTS tip: Avoid trying to only compare apples with apples. It is hard to find companies that exactly fit yours, and sometimes the pear might show an advantage you didn’t expect. Embrace the differences and try to get the most out of it.

Step 2. Gather information and create competitor profiles

Now that you have selected your peer group, it’s time to learn more about who they are and how they compare to you. At A-INSIGHTS we found that the following 9 metrics are most valuable to include in your analysis:

  • Net Sales Growth: to measure up the company size and growth performance.
  • Gross Margin: to know if a profit trend is driven by efficiency, added value or commodity prices.
  • EBITDA & EBIT: to measure profit benchmarking.
  • Return on Assets: the ultimate performance comparison.
  • Net Capex: to know if a company is preparing for future growth through capital expansion.
  • Operational Cash Flow: to see if a company needs external financing for capital expansion.
  • Solvency: to assess the financial health for a company on long-term.
  • Quick Ratio: to show the proportion of a business’s current liabilities, that can be readily converted to cash.

What you want to do is to gather all this information per competitor and combine it into a file: their competitor profile.

A-INSIGHTS tip: searching for news items about the market and your peers gives you a better view of the current economic situation. It also helps you identify technological and product developments in your market. Adding this information, will make your competitor profiles even stronger.

Step 3. Analyze the findings

With all the information gathered, you want to know where you fit into the market landscape. We advise to use a performance quadrant, comparing % net sales development against the % EBIT. This way you can break down your competitors into four basic categories:

Blog 1 - Performance Quadrant Vlakken
  1. Leaders: Companies with strong average profitability and strong average net sales growth.
  2. Challengers: Companies that on average grow relatively fast, but whose average profitability is relatively low (or negative).
  3. Veterans: Companies whose average profitability is relatively high, but whose average growth is low (or negative).
  4. Laggards: Companies whose average profitability is low or even negative, and that are growing slowly or even declining.

Last but not least, add yourself into the quadrant. See where you are, and which competitors are closest to you? Which peers are you most concerned about? Or most importantly: where in the quadrant do you want to be in 5 years?

Step 4. Determine your competitive advantage

Now that your competitive analysis is mapped out, you want to take action on it. The key is to use the information to problem solve and improve your company’s strategic plan.

In today’s market, that might not just be about higher net sales, but also about straightening your position in supplier negotiations, spot M&A opportunities or finding new ways or places to produce more cost effectively.

Final thoughts

Competitor analysis is crucial to your strategy. You want to have insights in your competitors' moves, by updating the information on a regular base. Keep track of news items about your market and see how your peers develop. The goal is to find that sweet spot between market needs and operating possibilities.

Want to find out more? Download our competitor analysis report down below.

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