The competition analysis is a vital step while generating the business idea. It allows you to design a unique competitive advantage and position the product in the market. Having an innovative business idea one may have the impression that “I don’t have competition” or “My product is unique in the market”. However, in most cases this is unfortunately not true. Many products/services, which look perfectly good on paper, fail harshly when faced with market competition. Traditional tools of market analysis such as, for instance, Porter’s 5 Forces, are difficult to apply for companies that define their target groups through new market segmentation. So how can we successfully analyse our competitors? And how can we learn from them?
The traditional approach to analysing competition was from the point of view of the sector i.e. first you define your market segment and then you look for competitors that operate in it. However, in the case of start-ups it may be difficult to apply this approach as they attempt to create new markets or re-segment the old ones (Blank, 2013). It does not mean that they don’t have competition, it means that they need to look from a different perspective. As the funder of a start-up you need to define who will compete with you for customers regardless of the existing division into segments. Blank (2013) proposed using a so-called Petal Diagram which brings new perspective to looking at the competition. In the first step you need to draw diagram. Each petal1 constitutes a different market segment from which the company expects its future customers (see Figure 1).
Figure 1. Petal Diagram
Source: S. Blank, A New Way to Look at Competitors,
//steveblank.com/2013/11/08/a-new-way-to-look-at-competitors/
[20.06.2015]
In the next step, you fill in the market spaces with names of companies that are representative of players in each segment (in the picture 1 A, B, C etc). Finally, you can analyse your competition on the basis of gathered data in such aspects as: offered products, segment concentration, market development, customer loyalty, and impact of brand on customer choice.
Benchmarking is a tool that allows a company to ‘uncover, analyse, adopt and implement’ current best practices (Gravin, 1993). In other words, it is a method of learning from the market leaders through making comparisons of their processes, products or services. Benchmarking has its origins in 50s XX century. At that time, the Japanese, in order to fight economic backwardness, visited various Western companies. They had been gathering information about technical, technological, and organizational aspects of doing business. Afterwards, they adapted the most efficient solutions. As a result, in many cases, they were able to develop better versions than the original, with lower costs.
Competitive benchmarking compares companies offering similar products/services. It allows you to acquire strategic data, compare & apply profitable solutions and define a company’s position in the market. However, as many specialists indicate, it does not bring truly innovative solutions, as the analysis is limited to one sector.
Functional benchmarking encompasses analysis of companies from other sectors but similar from the functional perspective. It is based on the assumptions that processes, regardless of the type of business, function similarly (for instance: supply processes, communication processes). It enhances the innovativeness of the company and creativeness of its employees. However, it is time-consuming, costly and often causes problems of comparability.
There can be distinguished various levels of benchmarking analysis (Mikulski and Mikulska, 2006):
1. Strategic - the analysis of mission, vision, general strategy, investments or R&D activities by market leaders.
2. Process - the analysis of processes and procedures, which create value for customers and decide about organizational effectiveness.
3. Product - the analysis of product/service from the perspective of customer satisfaction and innovativeness.
4. Management methods - the analysis of key functions and ways of management of companies.
In this chapter, I will concentrate on product/service benchmarking, however, the presented scheme may easily be applied to all aforementioned types of benchmarking.
Benchmarking analysis may be conducted at various stages of the product/service life cycle. At the beginning of product/service development, it brings valuable knowledge about the products/services of the competition, which can be used later to deliver goods more aligned with customer needs. As market trends change, dynamically forcing companies to be innovative, benchmarking is a helpful tool to monitor competitors’ moves and apply the latest business solutions.
1. Definition of subject of analysis.
You need to decide about the level of analysis: product/service, process, strategy or management methods.
2. Definition of the most important factors, which will be examined.
While analysing a particular product/service, choose factors, which are the most important for your customers. The factors need to be measurable and comparable. For instance, you can use such measures as: delivery time, percentage of complaints, product advantages.
In order to make measurable comparison of your competitors, create a table with variables and add weights indicating the importance of each of them for the customer (Table 1).
Table 1. Benchmarking - factors with their weights
Source: Own compilation
Factors | Weight |
---|---|
Name | |
Delivery time | 0,2 |
Percentage of complaints | 0,3 |
Price | 0,4 |
Size | 0,1 |
3. Selection of the market leaders.
Sometimes it might be difficult to decide who the market leader is as we can apply different criteria, such as, for instance: market share, innovativeness, and revenues. It might be useful to ask potential customers, distributors or other market participants about their opinion.
4. Information gathering and evaluation of (product/service of) market leaders.
In order to make comparisons it is vital to gather data. However, the acquisition of necessary knowledge maybe problematic as companies try to protect information about their products and processes. On the other hand, nowadays, we suffer from information overload which makes it even more difficult to find suitable and reliable information. Such sources as market research or consulting companies are well structured and trustworthy. However, they are usually expensive. In case of limited financial resources, you need to base your examination on open access knowledge sources such as forums, blogs, newspapers or social media. The analysis of information from them is more time- consuming as it requires verification and searching through large amounts of data. It is necessary to specify scope, methods of data gathering, and ways of organizing them.
In order to be able to compare the companies, you need to evaluate their product/service in terms of each factor using a Likert scale (1-5) (Table 2).
Table 2. Benchmarking - comparison of companies
Source: Own compilation.
Factor | Weight | Company
A
|
Company
В
|
Company
C
|
---|---|---|---|---|
Name | ||||
Delivery time | 0,2 | 2 | 1 | 5 |
Percentage of complaints | 0,3 | 3 | 5 | 4 |
Price | 0,4 | 4 | 3 | 1 |
Size | 0,1 | 2 | 4 | 4 |
In total | 3,1 | 3,3 | 2,7 |
5. Evaluation of your own product/service/business functions2.
At this stage, you need to analyse your business idea in terms of factors selected. The objective evaluation is the key to success, however, at the same time it is a challenge for you as the ‘father of the idea’. Therefore, often a better solution is to ask potential clients to evaluate your product/service.
At the end, you will be able to analyse your market position with reference to your competitors, with an indication of possible measures to improve (Table 3).
Table 3. Benchmarking - comparison of companies with your market position
Source: Own compilation.
Factor | Weight | Company A | Company В | Company C | Your
company
|
---|---|---|---|---|---|
Name | |||||
Delivery time | 0,2 | 2 | 1 | 5 | 2 |
Percentage of complaints | 0,3 | 3 | 5 | 4 | 4 |
Price | 0,4 | 4 | 3 | 1 | 2 |
Size | 0,1 | 2 | 4 | 1 | 3 |
In total | 3,1 | 3,3 | 2,7 | 3 |
6. Action plan design.
On the basis of analysis of competitors products you will see which solutions are profitable. The identification of them is not sufficient. You need to answer questions which will guide you to development of your unique product/service (Tomaszewski, 2013):
7. Implementation and monitoring of results.
Finally, after designing your product/service, you need to check its fit through testing in the market with real clients (Blank, 2013). It is important to set up measures that will assist you in monitoring of the results.
Cubicon was a small game development studio, which planned to enter the market with a new product. Its owners chose a niche segment called visual novels3 as it was a new market segment with low competition and relatively low production costs. They wanted to create a product, which would stand out from those offered by the competition. Therefore, the owners of Cubicon decided to conduct benchmarking analysis. Despite rich experience in the gaming sector, they had relatively small knowledge about visual novels. Therefore, in order to select the important factors, they had spent a lot of time on forums, blogs, and online portals devoted to visual novels, where people expressed their opinions. In this way, they also gathered knowledge about competitors’ products, which was necessary at later stages of benchmarking analysis. The key factors were, inter alia: company brand, engaging plot, variety of choices for a gamer, graphic design, and animation quality. Finally, they chose the best selling titles from the genre and started playing them. On the basis of their own experience with visual novels and customers opinions, they discovered that market leaders had built their competitive advantage on brand recognition and variety of choices for the gamer. The owners of Cubicon discovered as well that, despite a customer’s desire to play games with high quality graphics and animation, none of the companies were able to meet the customers’ expectations. On this basis, they prepared a demo baza of the game, which they posted on their website. At the same time, they tried to gain recognition as game developers in the visual novel segment by being present on online forums, commenting on specialist blogs and trying to get attention in the media. Thus, they attracted many visual novel lovers who tested the demo and gave valuable feedback to the company.
Actionable tips
Don’t view your competition from the perspective of one market but from the point of view from where your customers will come from.
Conduct benchmarking analysis of your competitors’ products in order to build your competitive advantage.
Use multiple sources to gather data necessary for benchmarking analysis.
Be precise while selecting factors for benchmarking analysis.
Engage your potential customers to gather information and receive feedback about your business idea.
Not all business solutions may be applicable to your company.
References
1 The number of petals is dependent on number of segments.
2 If you apply benchmarking in order to search for business ideas i.e. you haven’t designed your product yet, you omit this step.
3 Visual novels are static games mostly designed in manga style. They resemble multimedia novels or theatrical performance. Most of them offer statistics tracking, which a gamer has to build in order to continue the story. Moreover, they allow multiple endings, each of them is shaped as a result of gamer’s previous behavior.
Composed by Kaja Prystupa.
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