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ANALYZING YOUR COMPETITION

Regardless of the type of business you run, you always have competition or the potential for competition. There is just no doubt about that. Okay, maybe you have been lucky so far. You developed a totally new idea for a product or service. Since you were first, there was no competition. Maybe you picked a super location.  There is no competition for miles around. Why should you worry?  You shouldn't - unless, of course, you really did have a good idea or really did pick a good location. But if your idea was good or your location was prime, watch out. There's someone out there watching you. You may wake up one morning to find a competitor opening up right next door or just across the street. Or you may find someone peddling a product or service just different enough from yours so that your patent or copyright offers you no protection. The time to start worrying about competition is now, not after you have already started losing customers to a new upstart.  Once you begin losing customers, it may be hard to get them back.  You need to do some analysis now, before your competition can even get started.

Okay, so you need to analyze your competition (or potential competition). Where do you start? You make a list of your current or potential competitors. Right? Wrong.  Never start analyzing your competition by first drawing up a list of your competitors.  The place to start is with your customers. More specifically, the place to start is with your "ideal" customer.  Why?  Because you can't identify your true competition unless you thoroughly understand what your customer really buys when he or she does business with you.  Sound strange? Not really.

Peter Drucker, the famous business writer, wrote in his book Management , "A business is not defined by the company's name, statutes, or articles of incorporation. It is defined by the want the customer satisfies when he buys a product or service." Drucker was right. To really understand your business - what it is, what it should be, and perhaps more importantly, how you can beat your competition - you must understand your customer.

To begin your competitive analysis, start by visualizing your "ideal" customer. What does he look like? How old is he? Where does he work? Is he rich or poor? What problems, stresses, concerns does he have? Most important, when he comes in to do business with you, what needs does he have? What kinds of problems does he look for you to resolve?  Think about your interaction with your "ideal" customer in two respects - the process and  the outcome. Process refers to the nature of the interaction - what happens in the course of the customer doing business with you.  Outcome refers to the end product, of that interaction - what he takes away when the interaction is completed. For example, in a restaurant, outcome refers to the quality and type of food the customer was served. Process refers to how the customer was treated and how the food order was handled. To understand your customer, you must understand his expectations for both process and outcome, since meeting or exceeding both of these expectations is key to your success.  When considering your customer's expectations, think about what he or she might want in respect to the following:
1.  Capacity - The volume or range of products/services offered.
2.  Rate - Efficiency, performance, or capacity to offer products/services per hour, day, week, or other time period.
3.  Accuracy/Fitness for Use - Perceived quality of products/services you offer as compared to some absolute model or standard the customer has in mind.
4.  Comparative Quality - When the customer has no absolute model or standard to refer to, the perceived quality of the product or service versus a previous or competing product or service.
5. Uniqueness/Novelty - The perceived quality of what you offer due to some unique or novel characteristic not available elsewhere.
6. Timeliness - Your ability to provide the product/service by a promised, scheduled, or target date.
7.  Throughput Time - The elapsed time for delivery of product/services upon demand/request.
8.  Availability - Your ability to have the product/service available on demand and as needed.
9.  Planned Cost - Your ability to provide the product/service within an estimated or planned cost.
10. Relative Cost - Your ability to provide the product/service at a cost less than that of a comparable product/service.
11. Benefit/Value - Your ability to provide a product/service with high perceived value irrespective of relative cost.
12. Customer Service - The customer's perception of the care, attention, responsiveness, friendliness, concern, and so on with which you provide the products or services.

Once you have a thorough understanding of your customer and his needs and wants, then - and only then - are you ready to make a list of competitors or possible competitors. In drawing up your list, think of those businesses that could meet your customers' needs.  Who are they? Where are they? Obviously, you should list businesses like yours that are close to you - down the street, around the block. But also consider business across town that might relocate near you. Once you have these obvious competitors listed, you should go further. Ask yourself who is not in your business right now, but might get into your business because they are already in a related field? For example, if you run a restaurant, you might not initially view a grocery store as a direct competitor.  But couldn't it become one? Many grocery stores have opened in-store restaurants or food take-out centers. Try to draw up as complete a list of current or potential competition as you can.

Now that you have your list of competitors and potential competitors, you need to do some analysis. Take a sheet of paper and list your "ideal" customer's desires for both process and outcome (including the twelve areas us we mentioned) down the left-hand side of the page. Across the top of the page, make two columns. Label one "Strengths" and the other "Weaknesses." Using a separate page for each competitor or potential competitor you have identified, make a list of your strengths and weaknesses versus that competitor. You can just place a check mark in each column to indicate that an area is a strength or weakness, or you can write in a clarifying comment.

Once you have completed your analysis of each competitor, you should then consolidate the results. To do your consolidation, take a new sheet and tabulate the number of times a customer's desire was a strength or weakness. For example, you might have identified twenty competitors. When you do your consolidation, you find your relative quality is a strength versus twelve competitors and a weakness versus the remaining eight.

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