Market Analysis Part 2: Competitive Analysis

A large portion of market analysis is research and analysis of competitors. The market without any competition is rarer than a unicorn. So, we are starting from the general view of the market. We stick to our example with the startup producing the innovative cervical pillow, made of a rubber grid. The general conditions remain the same as in the previous article. Our example is located in a city with a 1 million population, of which 140,000 are adults with sufficient income. And 86,000 of them, according to statistics, are concerned about their health and the presence of constant or periodic pain.

To start, it’s necessary to divide all the competitors into three main groups by the impact on your business – direct, indirect, and replacement competition.

  • Direct competitors are those, who offer the exact same product as you do.
  • Indirect competition is when a company offers products, not exactly the same, but from the same category, e.g., usual pillows.
  • Replacement competition is when your and competitor’s products are different, from different categories, but resolve the same need, for example, cervical pillow and massage roller for relief of neck pain.   

List of direct competitors 

The first step is to collect the names of every potential competitor. Let’s imagine, after combing all possible sources of information for our pillow startup, you found out, that in your city, there are 8 bedding stores, 2 specialized orthopedic stores, and 10 online stores selling different stuff, including cervical pillows. We will talk about the sources of the information in the relevant section and concentrate on competitors. 

Primarily, you have to pay attention to your direct competitors. They are your main rivals, who can take away most of your profits. Because for the customer, the choice between almost identical products is way harder than between different ones. 

Market share

Being new to the market is useful to know the balance of power. But, if, like in our case, you are dealing with private companies, and your market is not country-wide, it will be very difficult to find reliable information about the revenues of your competitors. Private companies are not obligated to publish their financial data. But, today, when every self-respecting company has a website, the traffic of customers becomes a good alternative to know how interested they are in your competitors’ products. Professional tools for SEO analysis allow seeing how much traffic each website attracts. Although these services are paid for, for proper research it’s worth paying.

Pivot table of competitors 

For better understanding and organizing the information you found, and drawing the vital conclusion for your business, create a table for comparing the characteristics of companies and products. Let’s take 2 of the strongest direct competitors of our imaginary startup, and compare them and their flagman products. 

As we see, the “Real organic” company is noticeably more powerful than “Florento”.  They have more physical stores and 2,5x more traffic on their site. Of course, statistics on health concerns among adults and website traffic numbers are not connected directly. But if assume that 86 thousand is the target audience, “Real organic” and “Florento” have 58% and 23% of “market share”  or at least public attraction share, correspondingly.  In this case, “Real organic” has an overwhelming superiority. But it doesn’t mean, that our startup can claim only 19% of the market. Just because people visit their site doesn’t mean they are loyal customers. The only legit conclusion we can make is that “Real organic” is more popular and well-known among the audience in a given city.

Let’s take a look at flagman products of these companies and compare them to our high-tech pillow:

Strengths and weaknesses

As a result of our overview, we have a whole picture of direct competition in the city. We have one big and powerful competitor and another smaller one. Now it’s time to conclude, how much effort you have to put in to claim a part of your competitors’ share. Of course, there is a notional “free space” here, because, as we mentioned in our previous article, people often don’t bother to find a proper solution to their neck pain. Let’s formulate in one sentence the essence of given competitors.

“Florento” is a middle-sized company, that is focused on selling orthopedic pillows for beds, positions itself as a provider of bedding products, and cooperates with mattress sellers.  Their product is not much more expensive than a regular pillow and positions it as a healthy substitute for regular pillows. Their obvious strengths are price, simplicity of a product, maximum approximation to a conventional version of the pillow, and their generosity with promotional gifts because people like freebies.

“Real organic” is a much more powerful opponent. They have a massive distribution network, lots of contacts with related areas (doctors, shops), and a generous promotion strategy, identifying the huge amount of financial resources they have. Their flagman product is a “next generation” pillow for the best rest of your neck. They emphasize the medical side of their product and strengthen this accent while cooperating with doctors of relevant specialization.

The first company is about everydayness, comfort, and sleep normality. The second company is about the medical meaning of health, innovation, and radical solutions for health issues. But, every strength hides a big weakness.

Weak points of competitors’ strategies against your advantages

Not to speculate on all the possible weaknesses, that could be found in other companies’ strategies, we will confine ourselves with already mentioned traits. In real life, this list will be much longer, to the point that one of the weaknesses of a competitor’s distribution strategy can be considered the slowness of the manager of their local logistics center. Of course, we exaggerate, but anything is possible.

The main weak point of “Florento” is the limited areas of use. Their pillow was created for the bed and highly unlikely that someone will use it as a cushion. On a contrary, our pillow is suitable both for sleeping, sitting, or lumbar support. Simply put, as an orthopedic pillow, Florento’s pillow isn’t enough.

As for “Real organic”, their pillow is innovative, offers the possibility of using it anywhere you want, and is made of unusual material, that (presumably) is more suitable for healthy support. Seems similar to our pillow. But their product has one substantial flaw – it is available only in a U-shaped roll. Hence, it is suitable only for the neck, and it would be uncomfortable to sit on it or to put it behind the back.

Our example product could become a happy medium solution for those, who want a more comfortable and supportive pillow, but don’t want to get used to something radically new and throw away their collections of pretty pillowcases. For example, people like bicycles, and offering them loud and heavy motorbikes would be inappropriate. Instead, we could offer them an electrical bike. A small, almost unnoticeable electric motor won’t add a lot of additional weight, won’t make loud noises, but will help to save energy and climb uphill easily. Same with our pillow – it is a usual pillow, but with benefits and some additional features. And these features and benefits will help to argue the high price of our pillow.

Example of marketing wars

Indirect or replacement competitors who may impact your success 

Other types of competitions also could interfere with your success and take away your audience. In our case, indirect competition will be presented by, for example, casual pillow producers. Again, the question “Why bother with buying some cunning fashion high-tech pillows, if you can buy some usual one for half or even a third of the price?” arises. Your main goal here will be to ensure your customer, that your product is simple enough to understand without instructions and break the conservative beliefs with these arguments. And also, you will need to prove, that the benefits you provide are definitely worth spending double or triple the price. Create a broad info section on your website, and list all the benefits in printed materials in your store, or infographics on your media platforms.

One more rival you have to beat is replacement competitors. In our case, the main (one of them at least) goal of the high-tech pillow is to relieve pain in the neck/back/pelvis, provide a more comfortable position during sitting, sleeping, or driving; and at last, help to prevent future possible illnesses. If a person already has some health issues, he/she can fix them by visiting a doctor or with some auxiliary tools, like massagers or ethnoscience. We are not saying, that you have to convince your customer not to go to the doctor. But, other alternative options for solving the customer’s pains are the one’s replacement competitors. To deal with them, in our case, you need to prove, that your solution is a) an existing relevant option and b) it is better than others. For example, in the case of massagers, you can use a narrative, that using the massager consumes time and have to become a habit, otherwise it won’t work. You can offer your customer to save time and start fixing their neck pain just by sleeping in the right position with quality support.

Dealing with secondary types of competitors is important not only because they can take away your profits. But also because their target audience is very near and similar to your target audience. So, by convincing customers from your target audience properly via your website, information support, and quality content, you can also hook someone from the target audience of your secondary competitors. Hence preventing your audience from leaking out, you can attract some new customers from the outside instead.

But, the target audience is a complex and wide topic to speak about. In our next article, we will talk about how to find your target audience and how to create and use the ultimate marketing tool – the Buyer Persona. Keep in touch!

 

“Marketing research” series:

  1. Exploratory research
  2. Study your market  
  3. Competitive analysis (you are here now)
  4. Define your customer – Create a buyer persona
  5. Formulate the unique value proposition
  6. Define communication channels with a potential client 
  7. Define your marketing strategy
  8. Test your product and strategy
  9. Implement PDCA methodology 

If there is no link, it means we’re still working on the article, so stay tuned 🙂