Time to get down to brass tacks and put the “who” into it.
That WHO that I speak of is YOUR COMPETITION. It's time to figure out who you are competing with to gain the loyalty of both existing customers and future customers. It's time to list everyone that you are competing with and do your best to figure out what they are doing to steal your business away from you.
Look at it from the perspective of an athletic competition – say a football game. In order for you to win the game, a football team doesn't have to perform its best – it has to be better than the team that it is competing with. The coaches and players have to know what the rules of the game are, their own strengths and weaknesses, and as we will find out in this section, what the strengths and weaknesses are of their opponent(s). In football, the short term goal is scoring points and preventing the other team from scoring them. The long term is winning. In your case, the short term is gaining market share, getting customers to choose your product and / or services over the competition. In the long term, your goal – winning the loyalty of customers is not a matter of being the best you can be, you must understand what your customers are loyal to and do a better job of delivering on what your customer really wants than your competition.
The first step is to find the specific brands that are direct, often called “first level”, competitors to your product or service, in your geographic locality – your trading zone. Your trading zone is the geographic perimeter within which your customers mainly live (or if you have a new business, in which you expect them to live). Whether that is a radius around your business, a entire county or state, or a region of the entire globe (for an internet sales company) – you need to clearly understand your trading zone.
In many cases, these first level competitors offer a product or service that is interchangeable with yours in the eyes of the consumer (although of course you hope you hold the advantage with better quality, more convenient distribution, and other special features). For example, if you operate a local garden center, you may compete against the other garden centers within a 10-mile radius trading zone.
The next group of competitors, are “second level” competitors. These would be competitors who offer similar products in a different business category or who are more geographically remote. Using the example of the garden center, a discount chain that sells garden supplies and plants in season is also your competitor, as is a landscaping contractor who will provide and install the plants, and a mail-order house who sells garden tools and plants in seed or bulb form. None of these competitors provides exactly the same mix of products and services as you, but they may be picking off the most lucrative parts of your business.
The final group of competitors, or “third level” competitors are companies who compete for the "same-occasion" dollars. Inasmuch as gardening is a hobby, third-level competitors might be companies that provide other types of entertainment or hobby equipment; inasmuch as gardening is a type of home-improvement, competitors might be providers of other home-improvement supplies and services. Depending on your business, this could make you crazy thinking about it. For example, a gift shop, you not only are competing with other gift shops locally, and globally on the internet, but you are also competing for “gift” dollars, which literally are spent in nearly every retail outlet in the world. Bottom line is that you shouldn't as much go crazy thinking about third level competitors as much as you should understand the impact they have on your marketing and sales efforts.
Now is when the task becomes a bit more tedious – not difficult, just tedious. We have listed all of our competitors, focusing on our direct first level competition, next in the process is finding out about each of these companies. It's time to figure out how much business each of you competitors are actually doing, what their position is (even though they may not understand it themselves) and how well they are delivering on their promises to the customer. This is tedious, because you may or may not, at this stage, even have a good idea how well your company is doing, so to find out about your competition can be even more difficult. But do your best because you must know whether you are competing with world class competition or just a bunch of “mom & pop” start-up companies.
Describe all of the heavy hitters and answer the following questions:
What are their product's strengths and weaknesses?
What are their strengths and weaknesses as a company (financial strength, reputation, etc.)?
Are there weaknesses you can exploit?
What are the differences between your product features and theirs?
What were their sales for last year?
What is their pricing structure?
In what media vehicles do they promote their products?
What is their advertising message?
Where else do they promote their products?
What were their total advertising expenditures for last year?
What is their overall goal (profitability, market share, leadership)?
How are they trying to meet their goals (low prices, better quality, lower overhead)?
What were their responses to changes you made in your product pricing or promotions?
Information is often the key to a strong competitive advantage. If you've had difficulty digging up information about your competitors, try your suppliers. They can be good sources of information. Visit your competitors' locations, Web sites, exhibit booths; sample their products. You can also gather a wealth of media and advertising information about your competitors on the Internet through companies like “Competitive Media Reporting” and USAData, and InfoUSA.