Market Research: Industry & Competitor Analysis

Two extremely critical matters to consider when embarking on a new business venture are Competitor and Industry factors.  Let’s break these down individually so you can learn how to conduct an industry analysis and competitor analysis.

Competitor factors are self-explanatory – someone else has already opened shop doing what you’re doing, and you need to figure out how big of a threat they are to your business.

Industry factors include the big, over-arching movements in your market.  These are make-or-break factors that you and your competitors have little to no control over, but which will affect all of your businesses.

To understand the difference between industry and competitor factors, let’s use a fun analogy to one of my favorite sports: Surfing.

Similarities between Surfing and Business

When I lived in San Diego, I used to surf often.  If surfing was a ‘business,’ waves would have been the customers.  My competitors were the other surfers out in the water, fighting for the same waves as me.  And in truth, the more surfers there were in the water at any given time, the fewer waves there were to go around – the competition was fierce.

Notably, some surfers were very aggressive about pursuing waves; many would go as far as to ‘drop in’ on a wave another surfer was already surfing, much like stealing someone’s existing customer.  (Fortunately, most surfers in San Diego were kind enough to respect the ‘lineup’ or branch off into temporary ‘territories’ to establish a sense of order and sharing.)

But regardless of how friendly or mean my competitors were in the water, we all lost the game when the ocean itself failed to produce waves in the first place.  Here the ocean represents the big, over-arching industry factor that carries the ability to make or break the market.  Some days, the ocean would produce plenty of great waves for everyone; on other days, the ocean was dead flat.  It’s hard to win if the ocean is flat.

Therefore, regardless of the number of surfers in the water, the first thing we surfers do before paddling out is look at the surf report to determine if it’s even worth our time to drive to the beach.

Assuming the surf report looks good enough to make the drive down to the beach, the second step is to evaluate our competition.  If the shoreline is heavily crowded with competing surfers, we know our prospects for catching waves might be bleak.  Maybe we should move onto another less crowded area, or drive to a different beach altogether.

On the other hand, perhaps it would be enough to size up the existing competition and determine whether or not our individual competitive advantages would be strong enough to catch waves in the face of the crowd – namely, physical fitness and the ability to read, catch, and ride waves.

After watching a group of surfers who are already in the water for several minutes, we can generally get an idea of their skill level and the resulting chances we have individually to catch waves if we paddle out into the group. We will also take note of any obviously skilled or aggressive surfers that will pose a particularly high ‘threat’ to us and our ability to catch waves.

In some cases, an entire group of skilled surfers who are all friends with one another will completely monopolize an entire area of the beach (usually where the best waves are rolling in) and make it highly difficult for outsiders to intrude on their territory.  This makes for a particularly tough time trying to catch waves, and is about as fierce as the competition gets.

You can see why I picked this analogy.  There are many parallels that can be drawn to the business world.  The key takeaways, however, are simple enough: you need to ensure your customer base exists within your industry first and foremost; then, you must evaluate your competition to come up with a realistic assessment of your sales prospects.  This includes not only the quantity of competitors in your market, but also the quality of your competitors – what are their competitive advantages and disadvantages?

Are the other surfers in the water in better physical shape and more skilled than you, making it unlikely that you will beat them to the best waves?  If so, is there another area where waves are breaking where you will not need to compete for those same waves?

You get the idea.

But as simple as this idea is, many new entrepreneurs fail to look at the surf report before driving down to the beach, and then when they finally do get to the beach, they underestimate their competition.

Read on to drill down further into the details of conducting your industry analysis and competitor analysis.

Industry Analysis

Before diving into any detailed statistics or data, define the specific metrics you will review and compare so you don’t wind up in ‘analysis paralysis’ (endlessly paging through data without ever reaching a stopping point). Some key metrics to dig into:

  • Market Size ($)
  • Market Growth – Past 1 year, Past 5 years, Past 10 years (%)
  • Market Demand – what factors might increase or decrease demand over the next several years, and why? If the economy as a whole changes, how might your business be affected?
  • Market Trends – what’s happening with technological advancement, consumer preferences, new products, etc.?
  • Barriers to Entry – what barriers will you face and how will you overcome them?

*Common barriers to entry include insufficient access to capital, high marketing costs, exclusive distribution agreements, resource monopolization, customer loyalty/brand recognition, predatory pricing, inelastic demand, legal issues, government regulations, and network effects.

Then, get the information you need to analyze these metrics through secondary research (data, statistics, and studies from sources like the Census Bureau and Small Business Administration.) Take advantage of the many statistical and data reporting sources available via gov. Additionally:

  • Consider visiting the library and reviewing the Statistical Abstract of the United States and Encyclopedia of Associations. (Plus, tell the librarian what you’re doing and see what their recommendations are as to additional resources).
  • Access information from industry trade associations if available, including trade journals and compiled market data. Many associations are willing to release basic statistics to a potential new trade member, if not for free to the general public.
  • It goes without saying you should use Google as a resource and spend several hours reading up about market research – including the identification of specific sources of market information for your industry or niche.

Finally, move onto primary research (the gathering of market information from your target customers). This type of information is often gathered through surveys, focus groups, or quite literally standing on the street corner asking people if they would buy your product or service!

Some entrepreneurs going into business solely for themselves choose to skip the expense and hassles involved with these methods, and instead choose to validate the existence of their customer base by looking at how their competitors are doing.  But do so at your own risk!  Even a supposedly ‘tried and true’ franchise model, such as a fast food restaurant, could perform poorly if it’s in the wrong location.  It would probably be a good idea to survey how many cars pass by the street of the potential franchise location before opening up shop, at the very least…

As an extension of your Customer Profile, it pays to survey a fair number of potential customers with questions such as:

  • How much would you pay for this product/service?
  • Why would you buy this product/service?
  • Why wouldn’t you buy this product/service?
  • From who, or where, do you currently buy similar products and services?
  • Is there anything you don’t like about their solution?
  • Where do you typically get information about products and services like these?

Once your primary and secondary research is concluded, write up an analysis in this section describing your findings including all relevant conclusions drawn.

Competitor Analysis

Take the time to form a list of your primary competitors, and research as much as you can about their companies.  Factors to consider:

  • Product/service offerings
  • Pricing
  • Level of Customer Service
  • Competitive Advantages – what makes them great?
  • Competitive Disadvantages – what could they improve?
  • Existing Market Share
  • Customer Loyalty/Retention Rate

You should then compile this information into a data table like this:

YOU Competitor #1 Competitor #2
Customer Svc
Comp Advantages
Comp Disadvantages
Market Share
Customer Loyalty

I recommend doing this in an excel spreadsheet, or in a spreadsheet in Google Docs for ease of comparison.

There are several places you can gather this information, and the two easiest places to do so are on a competitor’s website and in your competitor’s sales department!  Yes, that’s right – you can simply call into a competing company as though you will be a potential customer, and ask your questions down the line – What are your product/service offerings?  Pricing?  Customer Service…?  And so on.  This, by the way, is also a great way to research a company when pursuing it as a sales lead. 😉

As you can imagine, someone on the inside sales team will be more than happy to fill you in on these details.  For the sake of karma, just don’t waste too much of their time…!

Now, in the event your line of business does not lend itself to such a scenario (for instance, if your primary competitors are sole proprietors working for themselves without a team), you may need to reach out to these individuals directly and ask for their honest advice.  What’s worked for them, and what hasn’t?  How did they come up with their current pricing?  What changes have they made to their products or services over time, and their marketing plan?

While it may seem awkward to ask a potential competitor for business advice, in the case of sole proprietors, most will be happy to share their experience with you.  Not to mention, having a discussion with someone who is already doing the work you’re planning to do will provide you with a first-hand perspective of what your business will be like when you launch it.  This provides you with a valuable opportunity to reaffirm your excitement for your idea, or reevaluate it if you hear something different than what you were expecting to hear.

In Summary

This section is long, but it is meant to be – because your research should also be long and detailed.  Yes, it takes time (and in some cases, money) to answer the questions above and conduct all the research, but taking this seriously will give you the opportunity to identify potential threats to your business model, as well as unseen opportunities, before you hit the ground running.

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