Some small-business owners are familiar with the concept of conducting a SWOT analysis of their business to help them with strategic planning. SWOT stands for Strengths, Weaknesses, Opportunities and Threats.
Entrepreneurs can use SWOT analysis to evaluate their business with regard to internal factors (strengths and weaknesses) and external factors (opportunities and threats). This helps them to put together a clearer picture of the status and potential of their business as they plan for the future.
But have you ever considered doing a SWOT analysis on your competitors? I have found SWOT analysis to be a valuable tool when working with clients who are trying to evaluate the competitive environment their business faces.
A thorough SWOT analysis of each of your competitors can be revealing. Based on what you learn, you can find ways to deal with their strengths and capitalize on their weaknesses. You can be better prepared for the threats they pose and take advantage of opportunities they create.
Of course, applying this method to evaluating your competitors is going to be more difficult and take more time than using SWOT analysis on your own business. You will have to spend significant time researching and observing your competition, and you must take care not to make false assumptions about them.
Analyze both direct and indirect competitors, asking questions about each one and then doing research to find the answers you don’t know. Below are some questions you need to consider.
What are your competitors really good at? What are they known for? What attracts customers to their business? Why do their customers make a purchase?
For example, a small, independent pizza shop trying to compete with larger competitors such as Papa John’s, Pizza Hut and Little Caesar’s has to deal with the fact these brands are already well-known, typically have bigger advertising budgets and are supported by national advertising campaigns.
The independent pizza shop owner must come up with innovative and inexpensive ways to get the business’ name out to the right target market and create awareness that brings in customers.
Have you heard anyone complain about your competitor’s products or services? Have you experienced problems when you have “shopped” your competitor to learn more about them? Are there products that your competition does not offer that they should have available? Do they have problems with customer service?
The owner of an independent pizza shop may see that the competition uses inferior ingredients and therefore offers a lower-quality pizza. The competition may be delivering pizzas that have become cold during the delivery process.
The owner in his advertising could emphasize his use of fresher, more plentiful ingredients, a higher quality crust and a pizza delivered hot to show customers why they should choose his pizza over that of the other places.
Opportunities competitors create
Is your competition doing anything that represents an opportunity for your business? Have they made changes in the services they offer? Are there products they have not offered or no longer offer?
The independent pizza shop owner may see an opportunity to offer menu items that nearby competitors do not offer or do not deliver, such as sandwiches, soups and salads.
Threats competitors represent
What are your competitors doing that represent a threat to your business? Have they lowered their prices? Have they expanded to offer more products and services? Have they located closer to your business?
The small pizza shop owner may realize that a larger, well-known pizza restaurant nearby has begun offering lower prices and new specials.
An advertising campaign that emphasizes the more personal and friendly service of an independent neighborhood pizza shop and the high quality of the pizzas could convince customers that he is offering additional value that justifies his higher price.
You can see from the process described above that taking time to apply a SWOT analysis to your competitors may give you valuable insight that can improve your business strategy and ultimately the success of your business.