Business Plan Competitive Analysis
Posted on May 21, 2012 by Lola Rotimi-Sosanya
The competitive analysis states your business strategy and how it relates to the competitive environment where you are in. It is not just simply a compilation of information about your competitors. It is the analysis thereof that matters and brings true value to your business plan.
The main objective of the business plan competitive analysis is to identify your business’ current and potential position in the competitive environment and to identify how you can create a competitive advantage out of that position. Presented below are the key points which need to be addressed in making the competitive analysis:
Identify your Competitors:
The first step in making your competitive analysis is to identify who your competitors are – that includes both direct and indirect competitors. The difficulty of pinpointing your competitors depends on your target market. If you are opening a local restaurant, you can easily spot them by simply driving around your vicinity. If you are however, a furniture manufacturer, there is a strong likelihood that you have non-local competitors that could basically be from all over the country.
Presented below are different ways to gather information about your competitors:
- Visit their physical office (in business terms, we call it brick-and-mortar store).
- Visit their company websites. Most business websites have extensive information about their products, services and the company itself, which you can study to your perusal.
- Ask the competitor’s past and current customers by talking to them personally or by studying testimonials, comments and blogs to find out what the actual users have to say.
- Attend trade shows of your industry. Visiting competitors’ booths is an excellent way to find out more information.
- Study their public relations effort such as press releases and advertisements in newspapers, magazines, online blogs, etc.
Analyze your Competitors:
Now that you have identified your competitors, the next step is to analyze the information gathered. The following data has to be addressed and analyzed:
- Study the strengths and weaknesses of your competitors’ offers and benefits
- Determine their target market and their approximate market share
- Analyze data gathered from their customers. It is important to identify why exactly customers buy from them. For example, is it psychological, is their low pricing strategy implemented or is it because they offer after-sales services? All these have to be addressed in order to understand your current and potential position in the market.
Analyze the Competitive Environment:
The competitive environment refers to the entire dynamic system that your business is situated in. Aside from your competitors, it includes world economic conditions, socioeconomic considerations, technological innovation, legalities and politics – all in relations to how they affect your business.
Create your Own Competitive Advantage:
As you can see, the only way to structure an accurate and objective competitive advantage for your business is to know first what you’re up against. it is basically the strategic advantage that you have over your competitors, which sets you apart from the rest in the business environment.
Based on the information gathered about your competitors, you can now identify which of their strengths can be incorporated into your offer. Your competitors’ weaknesses are opportunities for you to turn them into your strengths. This enables you to deliver a product or service that differentiates you from the rest. This same concept applies to pricing strategies and marketing efforts. From studying their target markets, you can identify which niches have been overlooked or ignored. Always remember that many businesses became successful because they found an untapped market. From studying your competitive environment, you are now able to see the opportunities that can strengthen your competitive advantage and threats that can be avoided or addressed.
Quick Tips to Writing the Competitive Advantage
The business plan competitive analysis is usually several paragraphs long and it is best to properly section your write up with headers. In the first part, present your information and analysis about your competitors and the competitive environment. The next paragraphs are dedicated to your strategies on how to establish your competitive advantage. Always remember: You don’t have to go into extensive detail – choose only the most relevant information. If you are going to present your business plan to investors, make sure it is very persuasive. Therefore the content must be convincing and credible enough to show that you, as an entrepreneur have a definite plan and strategy, and that your business has a strong likelihood to succeed.
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