Competitive Analysis – Meaning, Objectives, and Significance
Every business is operating within an ecosystem. None of them exists in a vacuum. Hence it is essential to consider the strategies of your business competitor while formulating your business strategy. It helps in identifying the opportunities and threats for your business in the market. By identifying the pros and cons, you can effectively drive your custom strategy for your business objectives.
Competitor analysis begins from spotting the existing competitors and potential competitors. It filters out all the possible sources of competition, including strategic actions and reactions that will determine the profitability of two or more businesses. A well-scripted competitor analysis will allow an organization with a few potential competitors to keep a close eye on the activities of competitor organizations.
According to American academic Michael Porter, there are basically five major factors that will depend on the competitive environment between organizations. These five pointers should become the conceptual background for evaluating the strengths and weaknesses of an organization with another in a similar competitive environment.
- The threat between potential entrants
- The threat of substitute products/services
- The bargaining power of suppliers
- The bargaining power of buyers
- The rivalry among current competitors
However, from a broad perspective, competitor analysis requires to have a lot of business data in place – from size, growth, profitability, objectives, culture, strategies, exit barriers, etc. The following are some of the objectives of competitor analysis.
- To study the market
- To predict and forecast the organization’s demand and supply
- To formulate strategy
- To increase the market share
- To study the market trends and patterns
- To develop the strategy of organizational growth
- To frame diversification and expansion plan
- To study forthcoming trends in the industry
- To predict the upcoming threats and opportunities
With such humongous preparations and data handling involved, it’s even obvious to doubt the intention of competitor analysis. However, competitive analysis is a completely legal procedure, where information is collected from the public domain from various financial findings and other business reports published by an organization. There are several authorized databases both online and offline that can be relied on completing the findings of competitor analysis.