In our discussions on how to prepare a marketing plan, we've mentioned that every marketing plan should include a competitive analysis section.
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Some business owners push back on this, saying that they know the industry inside and out and just need to focus on their own marketing tactics.
That's a big mistake because it overlooks the many benefits of doing competitor analysis. Here are just a few of the benefits that businesses experience when they analyze the competition:
- Identify Your Own Competitive Strengths - You'll discover your company's competitive advantage -- the reason customers do business with you instead of your competition. Then you'll be able to communicate your competitive advantage effectively to win potential customers.
- Determine Areas of Weakness and Stimulate Innovation - Analyzing competitors' offerings may spur ideas for innovative improvements to your product offerings.
- Understand Pricing Better - Are you charging 50% below market for your products and services? Are you charging double what the competition is charging? The only way to find out is determine what competitors are charging. With competitor pricing in hand, you can make smarter decisions with respect to your own pricing.
- Find Untapped Opportunities - You might find that there are some categories of customers whose needs are not being met. For example, if you plan to prepare and deliver gourmet meals, you may discover that a particular part of town is not currently being served. If you can satisfy unmet needs, you'll develop a market "niche."
- Learn Industry Best Practices - By observing the actions of your competitors, you might learn more about your market. For example, does a successful competitor offer reduced prices during a particular season? If so, what might that tell you about your market's spending habits?
- Steer Clear of Overly Competitive Markets - If you find that your market is saturated with capable competitors, you can avoid the costly mistake of starting a business without adequate demand. You can then redirect your efforts toward something that will pay off instead. (For example, your research may tell you that there's an ample number of thriving gourmet meal services in your targeted market area already.)
Remember, your business doesn't exist in a vacuum. Your customers always have the option of going with the competition or choosing a substitute product. Accordingly, you need to keep track of what the competition is doing, and you need to document your key findings in your marketing plan.