Knowing who your competitors are gives you a significant competitive advantage. It then becomes possible to pull market shares away from them.
It is vital to have a good overview of the environment in which are you operating. This means knowing who your competitors are and why customers are going to them. There are several ways of researching your competitors:
- Visiting their stores
- Buying their goods and using them
- Spending time on their website
- Studying their financial results, which are usually in their annual reports
- Asking professional associations if there are any statistics showing the market shares of the various stakeholders operating in your field
When you research the competition, remember not to confine yourself to the handful of leading names or brands which immediately come to mind. A company selling craft beers is not necessarily competing with the leading international brands like Kronenbourg or Budweiser, but they could be losing customers to bars and restaurants situated in the same region or city.
Types of competitors
A business’s competitors are all companies, people or even public services which a customer might turn to instead of that business. An insurance company selling life insurance will therefore be in competition not only with other insurance companies but also with all other solutions which individuals may find to ensure their financial security (savings accounts, lottery tickets or even the money they hide under their mattress). Here are the different types of competitors:
- Direct competitors. These offer comparable goods and services and target the same audience.
- Indirect competitors. These are not selling the same products, but are taking money from the customer base of a related sector. A paint store will therefore be in indirect competition with a hardware store that sells paintbrushes.
- Phantom competitors. These are the free alternatives to which the customer may have access. Instead of calling a plumber, they leave their sink to leak or repair it themselves.
Having the upper hand
Once their competitors are identified, entrepreneurs need to find a way of making their offering more attractive, so as to win market shares. Entrepreneurs can:
- Drop their prices to be more competitive than others.
- Stand out from their competitors by improving the quality of their offering, adding related services or investing in a more upmarket niche.
- Extend their offering to products sold by their indirect competitors, becoming a one stop shop for their customers.
- Combat the phenomenon of phantom competitors by showing their customer base that it is easier, cheaper or more effective to use their services than to do without them.
Source: Small Business Marketing Kit For Dummies, Barbara Findlay Schenck, John Wiley & Sons Inc, 2012.