So you’ve got a great business idea…
What’s next? Checking to see if anyone is doing the same as you, or very similar to you is one of the most important steps to take next. These businesses are known as your competitors and will be one of your biggest threats whilst you are in business. It’s important to find out who your competitors are and what they offer in comparison to you – as doing so will help you strategize through pricing or other additions to your product or service. But that’s a topic for another article.
What is market research?
Market research is about gathering useful and accurate information about the businesses and customers you are going to be selling to. With the end goal being able to use this information to base your business decisions on. You’ll attract more customers as a result of doing good research and obtaining good data.
- Who are your customers and what will make them buy your product or service?
- Who are your competitors and how can you gain an advantage over them?
Once you’ve gathered this information you can analyse it to help you make informed decisions about how best to approach customers and compete against your competition.
For any business, the “market” refers to the people and companies who buy and sell similar products or services to those that you will be offering. They will become your customers and your competitors.
It’s helpful to think of the market as an ecosystem of buyers and sellers. The actions of both buyers and sellers have an effect on the market, as can outside influences like new legislation, cultural trends or changes in technology. Having said that, trying to understand everything that could impact this market ecosystem is not necessary – and it may be impossible! But being well informed about it and crafting what your place in it will look like, is absolutely essential.
Now we’ve discussed what market research is, we can start to understand the ways in which we can go about conducting it. For this article, we’re going to specifically focus on the ways in which you can research your businesses competitors.
Finding your competitors
Before we jump into the plethora of ways in which you can find your competitors, we should discuss the concept of direct and indirect competition.
Direct competition – these are competitors who are competing for the same customers as you and are selling a similar product or service.
Indirect competition – competitors who fulfil a similar need to your business but their approach is different, for example, a supermarket selling a meal deal is an indirect competitor to someone like McDonald’s. The product and target customers are similar as they are both targeting someone looking for lunch quickly. The approach is different as they sell in different capacities. The chances are if someone buys a meal deal from a supermarket they aren’t going to be buying a meal from McDonald’s as well.
Now you should be able to separate any competitors you find from the following tips into direct and indirect competitors.
You’re most likely going to start doing your research online, use these tips to help you learn more about your competitors.
What their customer service is like? What aftercare do they offer? Becoming a competitors customer answers these questions by allowing you to go through their sales process and see how they approach the customer experience.
You’ll be able to see a competitor’s strengths and weaknesses, you can break down each and see why it does/doesn’t work.
Some tips for finding local competitors:
- Search on Google Maps for businesses in your sector in your area
- Walk around the area too as not everyone sets up a Google Maps listing, especially not pop-up shops or mobile vendors
- Join local business forums
- Attend local business shows
- Check out trade rating websites like https://www.trustatrader.com/
- Conduct surveys to find out which businesses your potential customers use
Some tips for finding online competition:
- Search for the terms you think people would be searching for in order to find your business. What you see in the search results are likely to be your competition!
- When you find a competitor, search their company name in Google. The adverts at the top will often be a different competitor looking to poach from their competitors
- Search on Facebook for similar pages to the business you want to start
- Search for Facebook Groups that cover the industry you are looking at getting into.
- Search Amazon for products, magazines and books – where you look depends on your particular niche
- Search online for tradeshows and conferences that your competition might attend as exhibitors. Go through the exhibitor and sponsor listings.
- Search for niche related blogs in the search engines
- Search on Reddit to see who is active in your space
Analysing your competitors
Now you’ve found your competitors, you can start to analyse them. We can now go into more detail here about the approaches you can use to dissect your competitors.
The SWOT analysis is probably the most commonly used tool for competitors analysis and for good reason – it provides results that are easy to explain and easy to use. SWOT Stands for Strengths, Weaknesses, Opportunities and Threats.
Strengths: what is good or strong about the business itself – great brand, convenience, loyal customer base, best-in-class, low price, etc.
Weaknesses: what is bad or weak about the business itself – high costs, poor customer service, bad delivery systems, heavily in debt, etc.
Opportunities: positive external factors for the business – untapped markets/resources, growing consumer demand, government involvement, local market events
Threats: negative external factors for the business – market decline, unavailable resources, loss of customer appeal, changing technology, competition, economic or political uncertainty
The most common way to approach a SWOT analysis is to create a table, as demonstrated below, but you can approach it whichever way you please.
Often SWOT analysis is something that you’re encouraged to apply to your own business. This allows you to understand it better and then optimise it. Improving on your strengths and taking advantage of your opportunities while minimising your weaknesses and mitigating threats.
You could apply SWOT analysis to your proposed business now, but it will be more useful later in the process. Applying SWOT to your competitors you can gain useful information for your business. Not only can you learn from their mistakes but also their successes. The information you get from this is a better understanding of your competitors, but also the beginnings of a go-to-market strategy for your business.
Instead of working out how your competitors can benefit from improving their strengths, using their opportunities and doing away with their weaknesses and threats – think about how your business could compete with and benefit from them.
Identifying your competitor’s marketing channels
A marketing channel is any means a business uses to communicate a message to their customers, such as TV, radio, physical print leaflets, etc.
Identifying which marketing channels competitors use will give you valuable insight into how their business operates.
In some ways, competitor research and customer research go hand in hand. All of your potential customers are currently doing something else with their attention and their money – engaging with your competition!
Understanding what each of your competitors’ customers are like will help you not only understand more about the types of customers you can attract, but also the way in which your competitors are currently meeting, or not meeting their requirements.
Looking at your competitor’s marketing channels will allow you to understand the ways they build and maintain relationships with their customers.
Think about your advantage over your competitors
Why would anyone buy from you instead of your competitors. What can you do better and differently?
Creating competitive advantage is such a deep topic and the ways you can create competitive advantage span far more than just pricing or support – at this stage you can start thinking about your advantage from the research you have conducted, such as competitor weaknesses you found in the SWOT.
It’s tempting to see competition as entirely negative. Competitors are often more established than your business, and their very existence can seem like nothing but a threat to your growing business. But having competitors means there is a demand for similar products and services – competition is evidence of customers. Winning over those customers and finding new ones will be the task of your business.
By contrast, if you find that you don’t have many (or any!) direct competitors it can be harder to judge the size of the market available to you. If this is the case, you will need to be more cautious in your planning. You’ll need to factor in lack of reliable information into your expected sales in your financial plans later on.
Keep track of your spending
It’s important to keep tracking your purchases and add them to a spreadsheet to ensure you don’t go over budget and drain your resources.
For some types of research, the cost is minimal – it’s just you working on a computer, checking up on the competition, etc.
But if you choose to engage in primary research – setting up questionnaires, offering prizes in exchange for responses, or even just paying for a cup of coffee as you interview someone, you are going to have to spend some money
Part of the cost of starting your business is market research – and it might be some of the best money you spend in the long run. As such, it should be included in your business plan.
Refining your financial projections with your market research
In this early planning stage, you should have a very rough financial plan. Which should consist of information you gathered when coming up with a business idea and when you started tracking your costs in week 1.
So far, the figures you have may mostly be around the costs of starting and running your business. Now, with your competitor research in hand, it’s time to look at the sales side – what you can charge, and how much you need to sell.
Look at what your competitors charge for their products or services. Which has the offering most similar to your business idea? Can you charge a similar amount?
We’ll look at your pricing strategy in detail later – what’s important at this stage is to get an idea of what you can charge for a product or service like yours.
The next thing to consider is, how many sales do your competitors get? And how many, by comparison, could your business get? This is more of an art than a science, and it’s likely that the figures you think are realistic now will change as you learn more, both about the realities of doing business in your chosen field and about the kind of business you’re going to run.
Plug some ballpark figures into your financial plan using the data you’ve just gathered. Remember the rest of your figures don’t need to be 100% accurate at this time. We’re just testing the water here to give you a base price to go on for later, so you’re not going forward completely blind. This’ll give you a good idea as to whether your pricing is viable.
Charging a similar amount to your competitors will mean your product will have to be as good if not better, to convince them to switch to you. This is just something to just have in the back of your mind, as you’ll need to be able to differentiate your product further down the line in the marketing phase.
In the next article we research your potential customers, this will continue to inform how much you could sell your product for.
Be diligent and honest
What we’ve covered here will give you valuable insight into finding and analysing your competitors. Finding your competitors is the easier part of the market research process. Analysing them is where you need to ensure you’re completing the process properly. The best businesses are built on solid market research data, it provides the foundations for a lot of your business decisions.
Try not to overthink all of these tips I’ve given you here. The best ways to approach market research are with an open mind and little bias about your competitors. Going in with a negative approach is only going to invalidate your research you’ve spent time working on.
The next part of the market research process is to identify your customers and what their attributes are. You can use the foundations of what you’ve done here to help you with that.