Competitive analysis — What to do before you commit to your next great business idea

Whether you’ve already started an online business, are looking to expand an existing one, or are considering taking the leap and launching your very first ecommerce store, running a competitive analysis needs to be one of the top items on your to-do list.

This is especially true for brand new ecommerce store owners. Entrepreneurs are known to jump headfirst into their latest idea. While the passion is admirable, a little more homework on the front end could soften the landing. Simply put: a competitor analysis is one of the best strategies to implement as you consider pursuing your next business idea.

We’re going to look at everything involved with conducting a competitive analysis:

Who to study
What you hope to learn
When to do your competitive analysis
Why it matters
How to run one

But let’s start at the beginning.

Also known as a competitor analysis, the idea is to methodically study a handful of businesses that are direct and indirect competitors to your own. You want to study their marketing strategies, strengths and weaknesses of their products and services, and compare what they’re doing to your own business so you can identify areas of opportunity.

This is not a small task. It’s not something you can do in 30 minutes. To get the most benefit from a competitor analysis, you should plan on spending several hours, probably at least a full day, studying the various components of your competition. And this is at a minimum.

One reason it takes time is because you want to write (or type) stuff down. You’re not just looking at websites and making observations. A competitive analysis involves documenting what you find so you can use your new knowledge in your decision-making process as you build your own online business.

For new businesses, the time to do a competitor analysis is now. Before you get too far into the weeds. Use your analysis as a helpful tool to guide your strategic planning, before you even launch. With a competitor analysis, you may decide your whole business idea isn’t quite right, and that you need to make some big changes, or scrap it and start over.

Or, you may discover your idea is great, but that you need to alter your focus and position yourself in such a way that will help you stand out from the competition. If three competitive businesses are doing A, B, and C, but they’re focusing the most on A and B, you might be able to focus your business on C, and maybe find a D that they’re missing.

Or you might find your competition has a great product or service, but that their marketing tactics just aren’t very good.

You’ll see how this can happen once we get into the details of what you’ll learn in your analysis.

For existing businesses

But what if you’re already running a business? Should you do another competitive analysis?

The answer is yes, but the details will vary for each business. You want to find a rhythm that works for you.

For example, you may decide to do a competitive analysis once per year. Or twice per year. Larger businesses with more employees and more market share may do them every month. Watching your competition becomes a full-time job.

You might also decide to run a competitive analyses if:

You start to lose customers without a clear reason
You’re about to launch a new product or service
You want to change your pricing strategy or some other core business component
New technology is coming on the scene

Why is a competitive analysis important?

What you’re hoping to discover with a thorough competitive analysis are insights you can use to make profitable decisions and implement well-considered marketing strategies. Here are a few reasons to do a competitor analysis:

To discover strengths and weaknesses

When you perform a competition analysis, you want to determine what’s working well, and what isn’t. You can turn another company’s strengths into your own.

For example, you may discover one company’s competitive advantage comes from outstanding product pages that draw a lot of traffic. That means they’re doing something well with search engine optimization (SEO), or they’re effectively using paid traffic like Google Ads, social ads, other digital marketing strategies, or offline advertising campaigns.

You can look at the features of their product pages, and use their strengths to make smarter decisions on your own website. And you can study how they’re getting so much traffic, and look to replicate some of their strategies.

You may also discover their follow-up marketing is weak. They’re getting traffic and making sales, but they’re doing very little to generate repeat purchases, and they’re not even going after people who place items in shopping carts but don’t buy.

The idea here is, you can replicate the strengths of your competitors, and capitalize on their weaknesses by delivering in the areas they’re failing. Later in this article, we’ll introduce the SWOT analysis, a competitive analysis template that helps you keep track of strengths and weaknesses, and other insights you can turn into action steps.

To keep up with industry trends

You may have a concept in your mind of how your industry works. But after studying your competition, you may discover you had some knowledge gaps, or were just wrong about a few things.

Furthermore, things change. One reason to do competitive analyses regularly is that you’ll always be aware of changes in your industry. Shifting habits of customers, new technology, changing government regulations, tax updates, and other market trends — there’s always stuff happening, and you’ll be in on it if you regularly study your competition.

To discover untapped markets or niches

Another great reason to do a competitive analysis is that you may find market gaps — things they’re missing that you can use to corner a slice of your target audience.

If you’re still exploring your next business idea, you’re probably working on a USP (unique selling proposition). What unique solution do you offer to a problem facing your target customers?

With your analysis, you may identify gaps in a competitor’s marketing strategy you can exploit, but this will mean altering your USP, which will affect your entire business strategy. Making this adjustment now will be much easier than after you’ve already set up an entire online store and all of your marketing.

It might add some work to your plate, but if that adjustment will be highly profitable because your competitors are missing it, you’ll be glad you discovered it early and can use it to expand and grow your market share.

To learn how to differentiate

The USP is one aspect of this. With your competitive analysis, you’ll probably uncover several ways to distinguish your business from your direct competitors.

And not just in sales and marketing strategy. You may be aware of some challenges in your industry, or with business in general. By studying the competition, you might discover that they’re not doing a good job of overcoming some of those obstacles, and you have a better idea for how to do it.

How do you identify companies to study in your competitive analysis? Broadly speaking, you want to study a variety of them. But you also don’t want to overdo it. Information overload is real, and there is a law of diminishing returns. A good target range is to study 5-10 competitors.

Which ones?

Companies based on size

First, look to study businesses of different sizes. Don’t just study businesses of a similar size to yours. Look for larger ones. Look for smaller ones. Look at publicly traded companies.

Why? You want to see established businesses, as they have probably solved some of the problems you’ll be facing. You want to see new businesses and upstarts, because they might be like you and are finding new ways to reach customers, grow, and incorporate new technology.

They may be using a marketing strategy closer to what you might have in mind and are already claiming some market share percentage.

Companies based on location

Try to analyze competitors that are in proximity to yours, as well as ones farther away. You want your competitive analysis to study local businesses, regional businesses, and national companies. In some cases, you might also want to look at international companies.

Don’t limit yourself only to primary competitors in the same geographical location as yours. Look at the broader market landscape.

Companies based on business approach

Some companies are online only. They have an ecommerce store, or another type of online business, and that’s it. Others may be brick and mortar only, relying on physical locations. And others could be using a hybrid approach, using both physical stores and online stores.

Try to study competitors in all these categories.

Companies who are direct competitors

Your direct competition includes any business going after the same customers as you. If you’re a local business, it’s the other companies going after the same local customers. If you’re an online business selling to a particular niche, your direct competitors are going after the same niche.

For example, State Farm, Allstate, Progressive, and Nationwide all sell insurance. They’re all in the same competitive landscape because people generally only use one company for each type of insurance. All these companies are, for the most part, pursuing the same target market.

While not all direct competitors sell the exact same products, they are going after the same customers. Be sure to include at least two in your competitive analysis.

Companies who are indirect competitors

Indirect competition includes any company solving similar problems for customers as you, but with a different strategy.

This could just be geographical. If you have a local business in Arizona, you could study a similar local business in Connecticut. If you both serve local customers only, you’re not serving the same target market and are thus indirect competitors.

On the other hand, if you both also have online stores and ship products around the country in addition to serving local customers in person, you’d now be competing directly.

As another example of an indirect competitor, compare an online personal fitness company to a dietary supplement company. Both are solving the problem of physical health, but using different products and marketing strategies. The same customer could, in theory, purchase a product or service from both of you.

The reason to include indirect competitors in your competitive analysis is because you serve a similar target audience. Look to see how they speak to that audience. How do they market to them? How do they serve them? What do their customers like about their service? These are your customers too.

Another advantage of studying indirect competitors for future growth opportunities is that you may even find a few you can partner with them in a joint venture. The supplement store could offer three free months of fitness training when customers spend $50 or more. And the fitness trainers could give coupons to the supplement store for new customers who sign up for their recurring membership program.

Wait — how many competitors again?

You might be wondering, “You said study five to ten competitors, and now you’re telling us to study all these different types of companies!”

Yes — because some companies can qualify as more than one type of competitor. You might find a hybrid company (online and in-person) that’s larger than your business, operates nationally, and is a direct competitor.

So, it’s actually not that difficult to come up with five to ten competitors and still get a good sampling of a variety of businesses.

Where to find competitors to study

If you’re looking for local brick-and-mortar businesses, you probably already know of a few. If you don’t, a quick internet search will help you find them. Just search for “businesses near me” in your industry or niche. Depending on your industry, you could also use sites like Yelp and Angi.

For hybrid and online businesses, Semrush has a great tool that is free to use — the Market Explorer.

When you go to that page, first click the Find Competitors tab. Then, enter your URL in the search bar and click Search.

You’ll get a list of mostly direct competition, and it will give you information like their market share, audience size, and growth rate. Using this, you can quickly find a good array of businesses to include in your competitive analysis. The tool also categorizes your competition into industry leaders, niche players, upstarts, and established mainstays.

You can use a competitive analysis template, and there are many of them out there, but really, you’ll be better off making your own, because you know what you care about and what you want to learn from your competitor research.

So, get a competitive analysis spreadsheet going, decide what data you want to collect and how you want to organize it, and get to work. Here are some of the most valuable things you can learn from a competitor analysis:

How to engage with your target audience

Assuming their buyer persona is about the same as yours and that they’ve done some market research, how does each competitor approach their communications? How do they call them out in their marketing? What tone of voice do they use — playful, serious, practical, helpful, urgent, something else?

You may like how they address their target market in some ways, but decide on a different marketing strategy because you also see opportunities to succeed with something else. Language and tone are commonly-missed opportunities to engage potential and existing customers.

Your competitive analysis may also reveal different ways other companies engage their audience depending on the channel, such as email, website, and social media — with not all marketing channels getting the same level of attention.

The emotions, needs, desires, and problems of your audience

Your target customers have problems they want solved, desires they want fulfilled, needs they want met, and emotions they want satisfied. There are no plain, dry products with zero emotional engagement involved in the buying process. Every product and every service can annoy, delight, assist, or anger the person using it.

So, spend time examining your competitor’s marketing efforts in appealing to the real reasons why customers buy their stuff. How do they speak to the outcome of buying their products? Do they do this at all? If your competitive analysis finds that some of your closest competitors aren’t addressing the core needs of their customers, you may be able to draw them to your business.

Remember, you’re not just competing against these other businesses. You also have to win the customers! You’re ‘competing’ against them too. It’s easier to buy nothing than to buy anything. You’re competing against inaction, indifference, avoidance, and procrastination.

Learning how to tap into the emotions and desires your customers have regarding the needs and problems your products solve is how you win their business. If your competitors are doing this well, you’ll have a harder time breaking into their market share than if they’re doing it poorly. The good news is, lots of businesses don’t do this part very well, so you probably have lots of room to gain a competitive advantage.

Potential differentiators your business can pursue

How does your competition position their products and services so as to differentiate them from the other choices customers have? Some online stores use charts comparing actual direct competitors. Others emphasize things their products or services do that no other thing does. Others use quality as a differentiator. They might use a money-back guarantee or a warranty to put some teeth into their claims of quality.

Some use customer service aspects, even if the prices and products might be comparable, or even the same exact thing.

As a competitive analysis example, suppose four companies all sell similar brand name products in their online and in-person stores. But only one of them actually answers customer service emails and texts. Given time, that one will win customers from the other three. If that company knows they’re the best at responding to customers, they should leverage that in their marketing strategy.

Use your competitive analysis to see how other companies are attempting to differentiate themselves, and find a unique value proposition that no one else is using.

The benefits and features your competitors highlight

You may have similar products or services as some of your competitors. Take note of which features they highlight, and which benefits they emphasize. Their product pages should be great places to look for this.

How do they describe the benefits of buying their merchandise? Are they doing it well? Does it make you want to buy from them? Or are they kind of flat and weak? Again, look for strengths and weaknesses — things you can replicate, and things you can improve upon.

A strategy for your homepage

The homepage remains one of the first things many potential customers see when they find you online. In your competitive analysis, ask yourself some questions about how other companies in your market landscape are using this precious online real estate:

What’s the first line of text on the page?
What is the primary messaging they’re using?
How are they collecting customer contact information?
How do they direct visitors to other pages?
How are they using visuals like photos, graphics, and videos?
Is it clear who their target audience is? If you can’t tell within about ten seconds – it’s not clear.
How much text vs visuals are they using? Do you think they need more? Less?
Is the page easy to use?
Can you find what you want to find relatively quickly?

How competitors use their website

After the homepage, look at some of their other pages and get a sense of how they’re using their website.

Do they have a blog? How often do they post on it? Does their main navigation menu have lots of sub-pages or is it sparse? Which approach seems to work better, if you were one of their customers?

Do they have product pages and service pages? Are they using product categories? What is their contact page like? What is their checkout page like?

How do they appeal to leads? Do they have an email or SMS list, and are they promoting them in ways impossible to miss?

Do they have a search function? An FAQ page? An About page?

There is a ton of variety in all these aspects of your competitors’ websites. Not all of these questions may matter to you. This is why you need to figure out what’s important to you for your competitive analysis. What do you want to learn on their websites that might give you a competitive advantage?

Are they using multiple social media platforms or just one or two? Which ones? How active are they? What is their marketing strategy? Some companies post every day, multiple times per day. Some neglect their social pages on certain channels.

If several competitors are neglecting certain social media channels, you have to ask yourself a couple questions. Are they neglecting it and missing opportunities? Or are they neglecting it because they were active for a while but low social media performance didn’t justify continuing? Or, maybe they were active, but didn’t have an effective social media strategy.

How competitors approach customer service

Do they respond to emails and texts? Do they have a live chat feature? How helpful is it?

What happens when you make a purchase? Do you get an autoresponder email or text confirming the transaction? Do you get a shipping notice with updates? Are they using abandoned cart emails? Does your product get shipped in good condition and as advertised?

What happens when you join their email or SMS list? Do you ever hear from them? Do you hear from them too often?

What happens when you call? Do they even have a phone number? Are they friendly and helpful?

Is there an easy way to give customer feedback, and does it feel like anyone is listening?

All the best business strategies in the world only go so far if you don’t deliver good service. That’s why you want to include customer service in your competitive analysis.

How competing businesses use content

Next, look at the substance of their content. What do they blog about? What are their emails about? Are they appealing to the needs of their customers, or just constantly trying to make sales?

On social media, is their content leading people to their website or to sign up for additional communications or to engage in other ways? How much engagement do they have, even including things like likes and follows?

Do they offer other types of content like eBooks, PDFs, and whitepapers? Do they use video? Do they have a podcast?

You can leap ahead in your market positioning when you beat the content strategy of your competition.

The technology competitors use most

As mentioned earlier, your competitive analysis should also explore the technology that makes their online business possible. If they’re using WooCommerce, which extensions do they have? Who is their email service provider? Do they have an ecommerce CRM, and if so, which one?

You can actually see what technology a website is using with a tool called BuiltWith. Just type in their URL and it will tell you what tech is supporting their online business.

Just because they’re using all this tech doesn’t mean you have to. But it speaks to the kinds of problems or opportunities they’ve encountered, and what they have done to solve them. This is part of learning your industry.

The pricing strategy of top competitors

Do your competitors offer bulk pricing deals like bundling, or buy one get one free? Do they have a buy now, pay later option for higher priced items? Do they have a subscription model?

Do they tend toward beating competitors with the lowest prices, or do they charge higher prices and appeal to customers who care about more than just cost?

Sales strategies that work for your competition

Some companies run a steady stream of sales and discounts. Others keep their pricing more uniformed.

When your competitors offer sales, do they use percentage discounts, or dollar-off discounts? Do they use coupons? Do they reserve sales for subscribers, members, or VIPs, if they have a service option like that?

Do they offer different sales on different marketing channels, or do they use an omnichannel approach, pushing the same campaigns across multiple channels?

Are they using affiliate marketing? Do they have an actual sales team that fields calls or does follow-up marketing?

How competitors approach holiday marketing

You might have to run a specialized competitor analysis during certain holidays to assess this aspect, but it’s worth putting on your to-do list, because holidays are big business for many companies. And it’s not always the same holidays.

Companies selling bouquets do well on Valentine’s Day, Mother’s Day, and probably around graduation season. Other companies capitalize on the various summer and warm weather holidays. Study the marketing efforts of your competition during holidays relevant to your business.

Supplementary revenue streams your competitors pursue

Are any competitors leveraging other revenue streams besides their main product or service? For example, you might find an ecommerce business, but it could also offer a coaching service that gives advice and assistance on topics their customers care about.

Don’t be so beholden to your competitive analysis framework that you overlook potentially valuable surprises.

Customer perceptions and reactions to competitors

Lastly, what do your competitors’ customers think of them? Do they have good reviews? What do people say? How do they engage on social media, if at all? You can learn a lot about a business based on its public customer feedback.

You can also use customer reactions to identify gaps your competitors are missing. If you see similar complaints or comments from multiple customers, that’s an indication something isn’t getting addressed. Maybe you can address it.

For the final topic, let’s talk about some best practices for how to go about conducting your competitor research.

You’ve already seen a few ideas:

Look up customer reviews on Yelp, Amazon, Google, their own website, and social media
Use the BuiltWith tool to see their technology
Study their website in-depth

There are some additional ways to learn more about your competitors so you can run a thorough competitive analysis.

Become a real customer or lead

Yes, it’s your competition, but there’s no harm in spending a little bit on them if it will result in valuable information for you. So, buy an item or two. Choose well if they have a lot of options, or if they have some interesting sales options or special deals.

See what happens after you buy. Note their follow-up process. See how they market to you as an existing customer. You can gain tons of valuable information using this approach.

Similarly, join their SMS or email list. Sign up for their newsletter. And read what they send you. Learn how they talk to their leads and customers.

This is another way to become a lead, but now you’ll be discovering how they engage on the various social channels. Become an active and engaged follower for a week or two, and see what happens. Get a sense of how they use these channels.

If you want to see their holiday marketing, wait until the holidays of most interest to you, and join then so you can pay attention to their social media strategy around that time.

Study their SEO and online advertising strategies

Semrush has several tools that offer incredibly rich insights into the online marketing of your competition.

First, you can use this organic search tool to see which keywords your competition is using, and how similar they are to the ones on your website, if you have an online store set up. There is a ton of valuable information in this tool.

For local SEO, you can track how your local competition is using certain keywords such as ‘restaurants near me’ using the position tracking tool.

To use it, first enter your URL in the search bar and select a local target such as your city or county. On the next page, click Add keywords to track. There, you can enter several keywords and see how your competitors are trying to draw traffic using these phrases. Using this tool, you can get a clear picture of your local online competition and what they’re doing that’s working well.

There’s a lot more both of these tools can tell you about your competition, even including performance metrics. If you decide to use these tools as part of your competitive analysis, you can explore them yourself and find what’s most valuable to you.

Bonus: Check out the best free SEO tools available today.

Create a SWOT analysis

A SWOT analysis organizes the strengths, weaknesses, opportunities, and threats in the competitive landscape of your industry or niche.

This is a competitive analysis framework to categorize some of the data you’ll encounter as you study your competition. The idea here is to create a to-do list for yourself. This gives you something to work on from the competitive analysis you just ran, so you don’t just end up with a bunch of information but no action plan.

The SWOT analysis is your action plan.

As you go through some of the steps in your research, it’s inevitable that you’ll find certain strengths in some of your competition. So list them in one section of the SWOT analysis and weaknesses in the next.

“Opportunities” refers to anything you identified in your competitive analysis that you can take advantage of. Perhaps there’s a marketing tool or technology tool that few of them are using. Maybe you see a glaring omission in some of their follow-up marketing. Maybe you identified a customer need that isn’t currently being met.

“Threats” is just what it sounds like. This could include other potential competitors who threaten your business because they’re doing something that meets the same need — even indirectly. But threats can also include outside forces not related to your competitors. Threats to your entire industry or niche. Threats from governments. Threats from new technology. Threats from shifting social or cultural norms.

With threats in mind, you can start working on how to combat, overcome, or avoid them.

Of the four sections of this competitive analysis tool, the weaknesses, opportunities, and threats give you the greatest potential for differentiating your online business from your competition.

The decisions you make in the early stages of your business will affect the organization even years down the road.

As a simple example, every online store needs an ecommerce platform to make their store function.

So what technology will you use? What are your competitors using? WooCommerce is the go-to choice for new entrepreneurs for a reason. Advantages include:

Open-source software built by a community of developers
No mandatory software fees or per-transaction charges
The ability to customize anything in your store
Complete ownership of your website, as opposed to using an online marketplace like Amazon
A huge array of extensions — some free, some paid — that enable you to tailor your business and marketing to your needs and to your customers

The platform you choose to build your business on makes a big difference, and it’s not a decision that’s necessarily easy to change once you’ve made it.

With Woo, you can grow and shift as you go much easier than with other platforms, because it’s open source and adaptable to whatever you want to do. There is no proprietary software, no monthly fees you have to pay, and no per-transaction fees when you make a sale.

As your business grows, and as you alter and adjust based on what you continue to learn from each new competitor analysis, Woo can grow, alter, and adjust with you.

Start building your business with Woo.

About

Erika Ellacott