Steps to Performing a Competitive Analysis
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
Steps to Performing a Competitive Analysis
The first step to doing a competitive analysis is identifying your competitors. There are
two types of competitors: direct and indirect.
A direct competitor is one that is offering the same product or service and targeting the
same customer base as your business. An indirect competitor is one that sells similar
products but targets a different customer sector, or sells different products and services but
shares your customer base. Identifying and researching your indirect competition is
important, as it gives you a different perspective on your business or customer base.
To find these businesses, simply do a web search or use websites such as Product
Hunt and Crunchbase to help you find similar products and services and conduct market
research. Find as many direct and indirect competitors as possible to better understand who
you're up against.
Talk to competitors’ customers
As you're reading online reviews and comments, make a note of people you'd like to
learn more from and reach out to them. Talk to them directly and see who they are, what
they want and need, and why they had a bad experience with your competitor. Not only are
you learning about the customer experience, you’re also giving them direct attention that
could lead to business down the road. Think of it as a relationship: If something is lacking in
their relationship with your competitor, make it known that you will fulfill those unmet
business needs. At the conclusion of your conversation, thank them for their time and offer
them better customer service through your business.
Identify their strengths and weaknesses
Once you've concluded all your research, compile it in one place and evaluate your
competitors’ strengths and weaknesses. Use this information to improve your own business
and focus on specific areas you can capitalize on. As no business is perfect, keep this
research on hand to look back on and compare against when you do another round of
competitive analysis.
WOT stands for strengths, weaknesses, opportunities, and threats. Below we will
elaborate on these:
Strengths: Strengths are things that make a company stand out in the market it’s
operating in. They are an integral aspect of an organization. Strengths are factors such as
strong brand image, reduced debts, increased capital, loyal customer base, cash flows,
geographic location, intellectual properties, etc.
Weaknesses: These can be categorized as factors that act as barriers to an organization
when it comes to reaching its optimum level. Weaknesses are areas that a business needs to
improve on to stand equally against its competitors. Examples include a weak brand image,
increased debts, insufficient capital, etc.
Opportunities: These are linked to external factors that can offer a business a
competitive edge. For instance, if there is a change in government policy that is directly
linked to your product, it can determine the number of sales you’ll make.
Threats: Threats are external factors that can harm a company and adversely affect its
revenue, brand image, and other such sources of value. Examples include increasing cost of
production, limited supply of labor, rising competition, etc.
The value of SWOT analysis
A SWOT analysis can be used to home in on new business opportunities. It can also help
identify which technologies are needed to keep up with competitors.
Building upon strengths and minimizing weaknesses is a key part of business. A SWOT
analysis helps to do this. It also helps to minimize the weak aspects of a business before
they worsen over time.
A sound understanding of internal factors such as a business’s strengths and
weaknesses can influence the ability to seize opportunities and gauge threats. As tempting
as it is to keep up with competitors, a business needs to have the capability to do that. A
SWOT analysis is your savior in recognizing the company’s current potential.
SWOT Analysis Step-by-Step
Create a SWOT matrix
Create a grid first. Make a large square and divide it equally into four sections. Label
each box accordingly: strengths, weaknesses, opportunities, and threats. All the information
gathered will be filled in here.
Define objectives
When creating a SWOT analysis, decide which objectives are of primary importance as
you need to include them in each section of the SWOT matrix. For instance, many people
use a SWOT analysis when they’re looking to introduce a new product in the market. Make
sure you which strengths, weaknesses, opportunities, and threats one will counteract by the
end of the analysis.
Research
Conducting a SWOT analysis involves identifying a company’s strengths, weaknesses,
opportunities, and threats. A good SWOT report will pull together information from sources
of various types, including primary sources, such as company websites, financial statements,
and annual reports; and secondary information, such as reporting and news items and
product reviews as well as miscellaneous sites like Glassdoor.com.
Tip: Annual Reports are often produced by public companies and are often found in the
“investor relations” section of a company’s website. US public companies are duty-bound to
report financial statements to the Securities and Exchange Commission; search the SEC’s
Edgar database for a company’s 10-K filing. European companies active in the US might
submit a similar filing called a 20-F. UK companies can be researched on Companies House;
while data quality will be richer for large companies, even modest-sized companies may
provide useful data for SWOT purposes.
Strengths and Weaknesses
You can approach collecting and analyzing strengths and weaknesses in the same way,
as they will often cover the same ground, for instance “revenue” could be a strength or a
weakness. Here are some data points you can examine.
Financial performance
Revenue: the sum total of income generated from the sale of goods and services.
Net income/net profits: Revenue less operating expenses. An indicator of overall financial
performance.
Investing cash flow: A company that can invest in its operations or share buybacks indicates
a healthy financial position.
Financing cash flow: A company that can secure investment from banks and the capital
markets indicates a healthy and attractive company.
For all the above, positive indicators are a strength, and the inverse are a weakness.
Marketing Performance
SEO: How well does the company rank for its top keywords?
Advertising: Does the company advertise? How well do they do it? Do they have a clearly
defined brand? What makes them unique?
Word of Mouth Factors
Products: What are online reviews of products and services saying?
Employment: What do ex-employees say about the company?
Opportunities and Threats
Opportunities and threats are somewhat harder to discern as we move from
quantitative data to qualitative. It is best to think of this pair in terms of external forces
having a positive or negative impact on the business. Often, you will need to think about the
company’s context within their industry. Luckily, financial journalists love discussing industry
trends, so information should be reliably available.
Industry growth: Does the company exist in a growing industry that’s attracting
external investment? Or is it in a low/negative growth industry?
Regulation: Are there any upcoming changes to a company’s regulatory environment that
may be a threat or a benefit to the company’s operations?
Geographic: Is the company poised to enter a new geography?
Supply Chain: Is the company dependent on a fragile supply chain? Or
Trends: Is the company vulnerable to the fickle forces of fashion? Are demographic shifts
likely to play into its hands?
PESTLE analysis
A PESTLE analysis is a tool that gives valuable insights into an industry’s overall macro
environment. PESTLE stands for six factors—Political, Economic, Social, Technological, Legal,
and Environmental—factors. These factors are helpful as they help to determine the
external influences that can impact businesses. Furthermore, a PESTLE analysis can also be
used to identify important risk factors for a SWOT analysis.
