A number of people have written recently and persuasively on the problems of competitive analysis. It’s easy to be led astray by looking at competitors. Feature checklists capture the details of products but not why customers value them, and additional features may only add cost without satisfying the most important customer needs. A naïve competitive comparison can lead you to copy competitive offerings, pricing changes, or promotions without understanding the impact, potentially hurting the profitability of your industry over the long term. I agree with all of these points, but I also think there are some nuances to the benefits of competitive analysis that are worth mentioning.
It’s true, in my experience, that most companies spend too much time obsessing over their competitors. This is true for companies big and small, new and old. I think part of the reason is that it’s just easier to process competitive moves than to read the tea leaves of customer needs. Unfortunately, matching competitors typically just gets you into a tit for tat game. You end up with pricing wars, or feature creep as each company tries to check all the same boxes, or ad wars like the Coke Wars of the 80’s. Even if you win the game, there’s no real prize. You just eek out a marginal gain until the next round of battle. A worse scenario is that you play follow the leader with competitors, continually struggling to copy their latest move while missing opportunities to take the lead by going in a different direction.
The typical response to these problems is to advocate focusing on customer research as the be-all-end-all for external market insight, minimizing competitive intelligence. However, this approach has its own problems. Customers can often be inarticulate about what they want, especially when discussing unmet needs. Different customers also tend to have different priorities, and figuring out how to define a single direction from those needs is challenging. While defining needs-based segments is an excellent plan in theory, it is often devilishly hard and expensive to do in practice. I’m certainly not knocking customer insight, but it’s a long road with its own challenges.
My point of view is that competitive analysis is more of an art than a science. Anything that boils it down to SWOT analyses, Harvey balls, or feature checklists often misses the ultimate point. There are bigger strategic questions to answer, and those typically involve combining competitive and customer analysis.
Do we have weaknesses or gaps that we need to fill relative to competitors?
Most companies live inside a bubble to some extent. Customer research can help you better understand how the outside world perceives you, but competitive research can also be very telling. Find out how your competitors sell against you. If they have killer talking points, either close those gaps or figure out how to change the basis of the discussion to your strengths.
What are unexpected competitor weaknesses we can exploit?
Ask competitor salespeople what the hardest thing for them to sell is. The hardest to support after the sale? By identifying what’s painful for the sales force, you can understand where they’re weak. You often have a skewed view of your competitors if all you see is their press releases and case studies. There are things they’re not doing well, and you need to figure out what those are. Separate the marketing and hype from the reality.
Where’s the white space in the market?
A lot of strategy thought focuses on white space in the market, or blue oceans, as the book title says. You just need to make sure that your competitor isn’t focused on the same new opportunity as you – that would make the ocean much less blue.
Based on competitors’ strategies, what will they be doing in 1-2 years, and how can we preempt it?
Firms provide lots of signs as to where they are headed, but sometimes connecting the dots can be difficult. The best competitive analysis doesn’t just address current industry dynamics but also helps you understand what the basis for competition will likely be going forward.
The bottom line is that the risk of spending too much mental energy on your competitors is real. But if you get a little more creative in how you think about evaluating the competition, it can add a valuable facet to your understanding of your market.