How to Write a Competitive Analysis for a Business Plan + Example

If you are writing a business plan, hopefully by this point you’ve conducted thorough market research to identify industry trends and the target audience for your business. Now it’s time to conduct a competitive analysis. This section is included in virtually every simple business plan template, and the information you include will depend on several factors such as how many competitors there are, what they offer, and how large they are in comparison to your company.

What is a Competitive Analysis?

A competitive analysis is a type of market research that identifies your competitors, their strengths and weaknesses, the business strategies they are using to compete with you, and what makes your business unique. Before writing this section it’s important to have all the information you collected during your market research phase. This may include market data such as revenue figures, cost trends, and the size of the industry.

Why Do You Need a Competitive Analysis?

In this section of your business plan, you need to provide an overview of your business competitors.

This is important since readers want to know 1) you understand your competitive environment, and 2) have competitive advantages that will allow your own business to succeed.

If you are planning to raise capital, the investor will require a business plan that includes the competitive analysis section. When entrepreneurs tell investors they have no competition, it often raises a red flag. This is because if there’s no competition, it signals that a market does not exist. Sometimes competition is indirect. For instance, when washing machines were invented, while there were no direct competitors (other washing machine brands), there was indirect competition (consumers manually washing their clothing).

This section will also come in handy if your company is considering increasing prices or adding new products and services. You can use the information you find to determine how well-positioned your business is to perform in the competitive landscape.

How To Conduct a Thorough Competitive Analysis

A comprehensive competitive analysis involves the following three steps:

1. Identify Your Competition
2. Select the Appropriate Competitors to Analyze
3. Determine Your Competitive Advantage

1. Identify Your Competition

To start, you must align your definition of competition with that of investors. Investors define competition as to any service or product that a customer can use to fulfill the same need(s) as the company fulfills. This includes companies that offer similar products, substitute products, and other customer options (such as performing the service or building the product themselves). Under this broad definition, any business plan that claims there are no competitors greatly undermines the credibility of the management team.

When identifying competitors, companies often find themselves in a difficult position. On one hand, you may want to show that the business is unique (even under the investors’ broad definition) and list few or no competitors. However, this has a negative connotation. If no or few companies are in a market space, it implies that there may not be a large enough base of potential customers to support the company’s products and/or services.

2. Select the Appropriate Competitors to Analyze

Once your competition has been identified, you want to consider selecting the most appropriate competitors to analyze. Investors will expect that not all competitors are “apples-to-apples” (i.e., they do not offer identical products or services) and therefore will understand if you choose only companies that are closest in nature. So, you must detail both direct and, when applicable, indirect competitors.

Direct Competitors

Direct competitors are companies that fill the same customer need you do with the same or a similar solution. They serve the same potential customers with similar products and services. For example, direct competitors of a pizza shop would be other local pizza shops.

If you sell your products or services online, your direct competitors would also include companies whose website ranks in the top 5 positions for the same target keyword on Google. For example, if you are a home-based candle-making company, you would consider direct competitors to be other candle makers that offer similar products at similar prices. Online competitors would also include companies who rank for the following keywords: “homemade candles”, “handmade candles”, or “custom candles.”

Detail your direct competitors. What products/services do they offer? At what price points?

Indirect Competitors

Indirect competitors are those that serve the same target market with different products and services or a different target market with similar products and services. They fill the same customer need you do with a different solution. For example, a supermarket that sells frozen pizzas would be an indirect competitor to a pizza shop.

In some cases, you can identify indirect competitors by looking at alternative channels of distribution. For example, a small business selling a product online may compete with a big-box retailer that sells similar products at a lower price.

Detail your indirect competitors. What products/services do they offer? At what price points? Use the same 9-point checklist mentioned above for direct competitors.

Analyze Competitors

After selecting the appropriate competitors, you must conduct primary and secondary research on them to learn more about how they are conducting their business and what drives customers to purchase from them. Here are some methods you can use to learn more about your competitors:

Primary Market Research Methods

• Customer Interviews: Directly ask customers about their preferences, needs, and perceptions of your competitors.
• Surveys: Gather quantitative data on customer satisfaction, brand awareness, and perceived value.
• Focus Groups: Facilitate discussions among a group of customers to gain insights into their decision-making processes.
• Mystery Shopping: Conduct undercover shopping experiences to assess competitor’s customer service, product quality, and pricing.

Secondary Market Research Methods

• Industry Reports: Analyze reports from market research firms to identify market trends, challenges, and opportunities.
• Business Websites: Gather information on products, services, pricing, marketing strategies, and customer reviews.
• Social Media Monitoring: Track competitor’s social media activity to gauge brand perception and customer engagement.
• News Articles and Press Releases: Stay updated on competitor’s recent news, acquisitions, and strategic partnerships.
• Financial Reports: Analyze competitor’s financial performance to assess their strengths and weaknesses.

With these primary and secondary research methods, you can gain a comprehensive understanding of your competitive landscape and develop effective strategies to differentiate your business.

For each of your primary competitors, perform a SWOT Analysis and create a competitive matrix to identify their strengths and weaknesses, market presence, compare product features, and more, and identify opportunities where your business can succeed.

For each of your main competitors, you should research the following information:

1. Competitor Name
2. Competitor Overview (company history; how long have they been operating)
3. Product and/or Service Offerings
4. Pricing Strategy
5. Revenue Streams
6. Estimated Market Share
7. Location(s)
8. Target Customers (Service and Market Segment)
9. Sales and Marketing Tactics
10. Customer Reviews

By understanding what your competitors offer and how customers perceive them, you can determine your company’s competitive advantage against each competitor.

3. Determine Your Competitive Advantage

In this part of your competitive analysis, you need to detail the reasons your business is in a competitive position to outperform both direct and indirect competitors, and how the company’s business model creates barriers to entry. “Barriers to entry” are reasons why it would be difficult for new companies to enter into or compete in the same market.

For instance, you may have a patent that provides value to your customers and makes them less likely to switch suppliers, which protects your business from potential competitors. Or, you may have more resources than the competition and thus be able to provide superior customer service.

Below is a list of areas in which you might have competitive edge or advantage. Review each and expand upon the relevant ones:

• Size of the Company – Large companies have more resources and can usually offer lower prices than smaller businesses. This is a significant barrier to entry, as starting a small business and competing with a larger company may be difficult.
• Product or Service Differentiation – If your product or service is unique in some way, this will make it less likely that customers will switch to a competitor.
• Experience & Expertise – Experience and knowledge are valuable attributes that can help differentiate you from the competition.
• Location – If you are located in an area where there is high demand for your product or service, this can be a barrier to entry because competitors will not want to open new locations.
• Patents & Copyrights – Protecting intellectual property can prevent others from entering the same market and competing with your company.
• Brand Recognition – Customers are loyal to brands they have come to trust, which protects the company from new competitors.
• Customer Service – Providing excellent customer service can help you retain customers and prevent them from switching suppliers.
• Lowest Cost Offerings – If you can offer a lower price than your competitors, this makes it more difficult for them to compete with you.
• Technology – New technology that enables you to provide a better product or service than your competitors can be an advantage.
• Strategic Partnerships & Alliances – Collaborating with a company that your customers want to work with can help keep them from switching.
• Human Resources – If you have a highly skilled and talented workforce, it can be difficult for competitors to find and employ the same skills.
• Operational Systems – Strong operational systems that lead to greater efficiencies can protect your business from the competition.
• Marketing Strategy – Investing in strong marketing strategies can make your business difficult to compete with.

For instance, you could say that your [enter any of the bullets from above] is better than your competitors because [insert reason].

Competitive Analysis Example

The Bend Brew Shop: Competitive Analysis

The Bend Brew Shop is a new specialty coffee shop and brewery in Bend, Oregon. We offer a unique blend of high-quality coffee, craft beer, and a welcoming atmosphere. Our goal is to become a beloved local hangout, known for its exceptional beverages and friendly service.

Conclusion

The competitive landscape is one of the most important considerations in developing a business plan since it sets the stage by providing information on past and current competitors and their respective strengths and weaknesses. A strong understanding of the market landscape is needed before you can develop a business strategy for differentiating your company from the competition. Follow the above guidelines for conducting a thorough competitor analysis, and you will be well-prepared to create a winning competitive analysis section for your business plan.

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