Competitors: Know and Understand

Working with the competitive environment is not the easiest, but a very important part of a marketer's functionality.

In the most general form, market research includes two levels: macroeconomic analysis and the study of the so-called "working environment," which includes consumers, intermediaries in distribution channels, suppliers, and competitors. Often, the marketer's efforts are focused on consumers and partners, while competitive analysis takes a back seat. As a result, a market player may have a poor understanding of who their competitors are and how they operate. There are objective reasons for this.

Why is competitive analysis so difficult?

This question accompanies any marketer who is somehow involved in market analysis. But it is especially acute for those specialists who work in poorly structured markets, where it is often unclear who exactly is a competitor and how to gather reliable information about them. On digital markets, the situation is simpler, but even there this problem is systemic. Here are some thoughts on this matter.

1. Competitive analysis is psychologically uncomfortable, especially for business owners and team members who are "passionate about the cause."

It is always quite difficult to look at those who compete with you "on the same field," especially if they are more successful. Rationally, everyone understands that this is important, but emotionally it is unpleasant to learn information about your competitors' achievements, see how they have advanced, and realize that you are lagging behind in some ways. To be reminded again of the frantic pace of the market and how tired you are of this chase without a clear final result.

If you are an owner or a "manager with high responsibility," these feelings visit you. If you are a marketing analyst, you can abstract yourself from such an unspoken competition, but you are forced to provide information in a way that meets management's expectations, and therefore you may feel the desire to dose your "objectivity."

This approach can develop into a desire to "bury your head in the sand," which has quite serious consequences, up to the loss of the business. On the other hand, an inadequate assessment of competitors through the prism of self-confidence based on past achievements and successes is possible, which can become the "Achilles' heel" of any market leader.

Simply put, competitive analysis is difficult because it's not very pleasant to put yourself in the "discomfort zone" once again, especially if you don't understand why it's necessary.

In such cases, an external view and the involvement of outsourcing are especially important, as an outside observer is free from the experiences of a "market participant" and is relatively independent of the company's management and owners compared to an in-house marketing employee.

2. Competitive analysis requires significant time and resources, and the results obtained are quite difficult to verify.

Researching the competitive environment is a labor-intensive and quite expensive undertaking, especially for small and medium-sized businesses. Episodic and superficial assessments of competitors can be conducted by a manager or business owner, or a sales department head, but there is a high risk that the low representativeness of such observation will lead to incorrect conclusions and, consequently, a misunderstanding of the market and one's position in it.

When a marketer or other person responsible for researching the competitive environment draws up a plan for such work, its scale and cost become clear. It may require the purchase of customs statistics databases, industry research, the implementation of competitive intelligence tools, etc., which entails significant financial costs. And often there is simply no one and no reason to justify them: the manager does not want to increase costs, and the marketer has no motivation for this work – which is quite thankless. After all, a large amount of information obtained about competitors is difficult to check and verify.

This situation is largely explained by the following reason why competitive analysis is so difficult for businesses.

3. The level of qualification and motivation of the manager and performers to conduct competitive analysis.

Studying competitors is also difficult because this type of activity is one of the most demanding in terms of the qualifications of both the task setter (management) and the performers. Researching the competitive environment in many markets is closer to an art, as it requires the ability not only to know what and where to look for, but also how to extract this information correctly and in accordance with legal requirements. This requires special competencies of the marketer, and indeed the entire organization's team, as "scouts" must include purchasers, salespeople, and even technical personnel. Objectively, a very small proportion of enterprise marketers, especially those working primarily in advertising, are capable of solving these intellectually and emotionally complex tasks, which is not helped by the lack of clear motivation for this.

Moreover, even many marketing research companies are quite reluctant to deal with competitor research in markets where there are no established information collection systems (which, by the way, often yield ambiguous and contradictory results). It is easier to survey consumers or form a focus group than to devise ways to obtain systematic information about the client's competitor companies. Therefore, in complex and unstructured B2B markets, the rescue of the drowning is the business of the drowning themselves. At least without a clear task statement and a well-written technical specification, it will be difficult to obtain even from research agencies truly useful and representative information.

4. Lack of understanding of the value of information about competitors and the mechanism for its use in the company's work.

It is difficult to set yourself up for complex and lengthy work if its meaning and purpose are unclear to you. Moreover, it is always easier to refer to the fact that in your market you already know everyone, or that no useful information can be collected without significant time investment, so it's not worth starting. Sometimes it really is not worth starting, as collecting information without subsequent systematization and use is ineffective (this is also true for irregular work).

The mindset that knowing consumers is far more important than knowing competitors is quite common in business. This is largely due to the fact that the mechanisms for converting information about consumers into management decisions are more developed and widespread. But it does not at all mean that information about competitors is less useful. And here's why.

Why is competitive analysis necessary?

To avoid wasting extra time describing the basic principles that are already clear to everyone, stemming from the great saying "who owns the information, owns the world," let's move on to some less trivial ideas.

1. There are always or almost always far fewer competitors than consumers, and they provide a better picture of the industry / market.

The value of information from competitors is important because it allows for more systematic and representative market data compared to studying consumers. By looking at modern markets through supply rather than demand, one can cover a larger share of it in the same time, and consequently, improve the quality of assessments about the state of affairs in it.

2. Forecasting future technological / product trends of the market.

There are different views on the philosophical problem of the primacy of demand and supply, but for business practitioners, especially those working in B2B markets, the importance of forming new offers coming from manufacturers has long been clear. Studying consumer demand makes it much more difficult to see the future product structure of sales, while knowing the development plans of competitors allows one to "keep a finger on the pulse" of product innovations with less cost, meaning at least not to fall behind the market.

3. Search for sources of increasing organizational efficiency.

Here we are talking about benchmarking as such. It can be conducted not only on direct competitors, but in any case, it comes as a pleasant bonus. It is always useful to know the "life hacks" of your rivals, especially if they can be improved and implemented in your business.

4. Vision of corporate trends and market structure.

This task is important for medium and large businesses, as competitive analysis allows for prompt tracking of mergers and acquisitions procedures, assessing the value of one's own enterprise, and competently catching moments of "business bifurcations" – diversification, buying and selling assets, even exiting the market.

5. Optimizing costs of working with the market.

This area of work has many aspects, but one can be cited that explains why competitive analysis is important, for example, for promoters. To develop an effective advertising campaign, it is useful to know how key competitors will structure their promotion in order to attack free niches, devalue competitors' advertising messages, and so on. Such information significantly reduces the cost of an advertising campaign while increasing its effectiveness.

In fact, there are many more theses confirming the importance of competitor research. But even those presented give serious reason to think about the importance of this systematic work. The question arises – how to approach its organization.

General logic of competitive analysis and selection of tools

One of the most important messages for organizing a system for collecting information about competitors is the fixation of the fact that competitors are simultaneously both opponents and partners in market development. On the one hand, successful competitors take away your piece of the common pie, and on the other – they increase this pie by offering the consumer a quality product that provokes further demand. As institutionalists say – it's a game with a non-zero sum. That is, the victory of one is not always equivalent to the loss of another. Then competitors can be considered not only as opponents but also as partners in the development of the common playing field. In analysis, such accents should be placed, bringing qualitatively different dividends within the framework of partnerships and collaborations.

The second important question is how to outline the sphere where we are looking for our competitors to then analyze them. Such boundaries need to be drawn according to different criteria. Geographical – at first glance the simplest, but with the development of modern forms of trade and marketplaces, local markets are becoming increasingly rare. The boundary where a random purchase from a company from the other end of the World becomes a trend in consumer behavior is established individually.

Then follows a more complex criterion – the boundary between competitors within the market of a certain product and the markets of substitute goods. Is it necessary and how deeply to penetrate into the analysis of companies offering substitutes, and which substitute goods are most dangerous or promising for us as a direction for diversifying our business. There is no universal answer to this question, but it should be kept in mind.

Finally, the most difficult – competitors within the market, where there are niches and clusters of companies with similar market strategies or more homogeneous products for this market. Whom do we consider a competitor and whom not? What is more important – the type of product, business strategy, or maybe just the size of revenue? Again, everything is individual. Moreover, for a specific task and aspect of the research, the list of competitors may change.

Correctly selecting a list of competitors is extremely important, as a large number of them leads to a decrease in the quality of research for each and an increase in costs, while an unjustified reduction in the list can provoke low representativeness and incorrect results.

The third basic point – competitive analysis must be systematic, and information must be updated with optimal frequency. At the same time, different information may have different update periods, for example, the list of competitors – annually, and data on their prices – monthly. The longer observations are conducted and a database is formed, the more interesting patterns can be found during the analysis.

Fourthly, a clear mechanism for converting the obtained and systematized data into support for management decisions needs to be built. At the simplest level – a system of reports and the frequency of their presentation to interested managers needs to be formed. It is also desirable to establish key links between recorded market events and the response of the company's management system. For example, if a competitor's market share changes by more than 25% per year, a meeting on this situation must be prepared and held to take responsive steps.

Fifthly, a system of tools for collecting information about competitors from the market is formed. It may include working with data collected by third parties, surveys, test purchases, working with competitors' counterparties, and numerous other tools, but it is especially important to clearly define the list of internal competencies of the organization to compensate for important but weak "links" with external resources.

By following this simple logical sequence, a successful model of competitive analysis can be formed, which will certainly contribute to the strategic development of the company and increase the efficiency of operational activities.