Some companies do not think about competitors, believing they operate in a vacuum. Others obsess about the competition, but in a way more akin to that ex-girlfriend (or boyfriend) you can’t quite get over. Anecdotal ‘sightings’ of the competitor at industry tradeshows or chatter from prospects and customers force a company to realign their entire strategy every couple months. But this sort of retooling is only a manic reaction to perceived threats. Flipping out every time a competitor chalks up a success or steals a client is not a good way to do business. For a proper competitive analysis, you need to take a step back and collect as many data points as possible. Do not ignore your competitors by any means, but do not fixate on them either. You have no reason to change your overall strategy unless sufficient data tell you to do so. A sales person complaining that “they’re stealing my prospects” is not sufficient data.
What method should you use? Below are six basic steps to conducting a competitive assessment. If you would like a live report, Spyglass Intelligence is now selling a competitive assessment of the magazine publishing industry, from where some of the visualizations below are taken.
- Understand your industry and the strategies competitors are using: Before you even begin thinking about whether you are “winning” or “losing” vs. your competition, take a step back and try to understand your industry. A good place to start is doing a Porter five forces and/or a SWOT (strengths, weaknesses, opportunities, threats) analysis of your own company and your competitors. By listing perceived strategies along with whether a competitor is doing well or poorly in that area, you can start to see some correlations. Below is a sample assessment of six large, multi-brand consumer magazine publishers with a rating by each of the five forces — the number of plusses equals relative strength in that area (click here for a full article on Porter’s Five Forces in consumer magazine publishing).
This part of your analysis is meant to familiarize yourself with the big-picture movements in your industry. It is not where you will draw your conclusions, but rather a baseline for conducting the rest of your assessment.
- Find data (secondary, then primary research): With just the framework from a SWOT or Five Forces analysis, you will have a high-level understanding of the forces at work in your industry, but you will not have any confirmation as to whether certain business strategies are succeeding or failing. To confirm the hypotheses you made in your first framework, you will need to find as much data possible about your own company, your competitors and your industry as a whole.This data can be classified as either primary research or secondary research. Secondary research is any piece of material already available to you through the work of others (past market research done in-house, investor relations annual reports, trade association numbers, or syndicated reports. Always start with secondary research as it is cheaper, more available, and quicker to compile. Syndicated research may cost anywhere from nothing to thousands of dollars.
SAMPLE SECONDARY RESEARCH: VISUALIZATION OF THE TOP 12 CONSUMER MAGAZINE PUBLISHERS
Once you compile your secondary research in an understandable way, you may want to do some primary market research — focus groups, customers visitors and surveys — to dive deeper into how your prospects and customers feel about your products vs. those of your competitors. For this you will want to figure out which features (or attributes) your market finds important. From this, you will be able to compile a competitive strengths inventory of how your prospects and/or customers feel about the attributes of your products vs. those of your competition.
SAMPLE PRIMARY RESEARCH: VISUALIZATION OF SURVEY RESULTS FOR A COMPETITIVE STRENGTHS INVENTORY
- Create success metrics: While you look at data to further understand your industry, you will want to create metrics to recognize success or failure over time. These metrics could be anything from:
a) Size: Total revenue, number of clients, circulation, etc.
b) Profitability: Net profit, cash flow from operations, revenue/cost, clients/employees, circulation revenue/issues published, etc.
c) Returns: Return on assets, return on equity, etc.
For non-public companies, your metrics will need to be creative as the array of financial information in annual reports is unavailable. Also, when you choose a success metric, remember that growing large, taking market share and increasing revenue are not necessarily good measures of whether a strategy is working. Sales and marketing tend to obsess about growth, but profitability and returns on investment are far better determinants of success and failure. As an example, Reader’s Digest Association has grown its overall circulation and revenue over the last ten years, but only emerged from a 2009 bankruptcy in 2011. Look for metrics to pinpoint these issues.
- Refine the understanding of your industry based on data: Review your earlier work with Porter’s Five Forces and SWOT to see if they still make sense in light of the new data you have collected. If not, refine and revise your understanding so they fit the overall narrative you are building about your industry.
- Correlate strategies vs. success over different time frames: Try to correlate the different strategies you see your competitors using against your success metrics. Is there a relationship? Has this relationship changed over time? Do those changes make sense?Below is a graphic from our competitive assessment of the top 12 US consumer magazine publishers, that shows a success metric on the x-axis (% growth in revenue per issue) and an overall strategy on the y-axis (% of revenue from single-copy sales).
Here, single copy sales does correlate to success in the consumer magazine business, but this correlation has flattened in the last 3 years. Perhaps the recession has hit retail sales of magazines harder than subscriptions, making single copy sales a somewhat less effective tactic to employ in harder times.
- Benchmark over time: Remember that the competitive environment in your industry is always changing. Set aside time every quarter, six months or year to compile the same analysis you did above so you can spot changes as they happen. See which moves your competitors are making, and assess those moves strategically.
To conclude, make sure you have a framework for understanding the possible strategies in your industry, and whether or not those strategies are working. Do not get caught up reacting to every single move your competitor makes with fear and stress. But do not ignore what’s happening in the wider world beyond the four walls of your business. Instead, understand how those in your industry are striving for their own advantage, which seem to be succeeding and failing, and why so that you can leverage your own strengths to create your own business success.