Defining Who Competes for Your Sales Dollar
Once again, your competition includes anything or anyplace where your potential clients might spend the dollar they could spend with you. The following represents a partial list of potential competitors.
- Companies in the same industry and the same geographic market: i.e. other bookstores within 15 miles of your bookstore
- Online companies (foreign and domestic) selling similar products: i.e. novelty products that may be purchased directly from Chinese manufacturers competes with your local novelty business
- Companies in a different industry, but that obviously might take your sale: i.e. people may decide to go to a movie instead of eat in your restaurant
- Companies in a different industry, but that do not obviously compete: i.e. instead of going to a movie or restaurant, the family saves money to buy a car
- They do not spend the dollar: i.e. increasing prices, stagnant raises, salary cuts, and unemployment eliminated the dollar they might have spent with you
While considering each of these possible sources of competition saves unwise use of time and money, try to avoid analysis paralysis. Gather information about the most significant of source of competition for your business.
How to Find Information About Your Competition
Let’s discuss some methods for finding potential competitors. We favor more cost effective methods. For example, do as much as you can on your own. The Small Business Administration (SBA) also offers free on-line assistance. You may use a free consultant through SCORE to help you. However, you should contract with a market analysis firm if you plan to invest hundreds of thousands of dollars or more on your business.
Sources of information include:
- What you already know: Usually, you want to start or improve this business because you have a passion for it. So, you do not enter the field as a novice, but with a background of knowledge and experience. You, therefore, also know the competition. Make a list of who you already know.
- Potential Clients: Your target audience may provide the best information about your competition. They report what they feel: good and bad. Interviewing potential clients also provides an opportunity to begin building the relationships that will lead to success.
- Chamber of Commerce or Business Associations: most communities claim a chamber of commerce that includes businesses in the community. They can provide a list of competitors geographically located in your market. Business associations include companies (who join) in a national or international market.
- Business Profiles: Several web sites like Hoovers, Jigsaw, and others profile larger companies. They provide an overview of the company, financial data, key management, articles, press releases and more. Most offer a free limited program, plus more information for cost.
- Industry Search Engines: Several search engines exist on the Internet to find companies by industry. I use an unusual one, Career One Stop, that allows you to find companies by industry, location, and even company size. The results of your search will usually list the name of the company, a key contact person, phone, size, and a link to the companies web site.
Questions to Ask About Your Competition
You must convince clients to spend their money with you, rather than with your competition. Understanding your competition helps you identify the appeal they represent to the client. It helps you recognize the strengths—and the weaknesses—of their product or service. In addition, it highlights the strengths and weaknesses of your product or service. It may even indicate why you should not enter the market. Analyzing your competition provides a foundation to your marketing plan.
Your analysis focuses on finding the answers to the following questions and more:
- Who is my competition? Where would people spend their money rather than spending it with me?
- Why do they spend their money with my competition? What do they like about it?
- What don’t they like about my competition? What would they like improved?
- How much do they charge? Why does it cost that much? Can I do it cheaper? Better?
- How easy is it to buy from my competition? What paths or obstacles do they create?
- How do people make the purchase? Online? Walk into a facility? Phone orders?
- How does my competition deliver the product or service? Does it satisfy or frustrate?
- How much competition exists? Are there too many? Can the market bear one more?
- Does the lack of competition represent an opportunity or indicate a lack of interest?
- What makes my product or service more desirable than the competition’s?
- Why would anybody buy from me rather than from the competition?
You may wish to use one the variety of competitive analysis models to interpret what you learn: SWOT (Strengths, Weaknesses, Opportunities, and Threats), Competitor Analysis, or Porter’s Five Forces. They, and other models, provide a framework to analyze the information you receive.
A Final Thought: Saving Money May be Your Competition
The current recession generated a possible shift in the American consumer. They began to save again, rather than purchase or go in debt. Economists note an increase in savings. Luxury purchases continue to decline. Part of the shift results from lack of money. A bigger part results from people recognizing that consumer debt entrapped them. You now hear people who used to buy or lease a new car every year or three, brag about the high mileage on their current car. As Dave Ramsey says “the paid off home mortgage has taken the place of the BMW as the status symbol of choice”. Business owners, therefore, must recognize that saving money represents competition.
Once you understand who and what constitutes your competition, you can build a product or service with marketing and delivery portals that appeal to your target client better than the competition's.
Next week we discuss “So What Will It Cost?”
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