Components of a Business Plan: Competitive Analysis (Article 4 of Business Planning Series)

BusPlanningYTCArt4(This is Article 4 of a series in Business Planning. You can read the previous articles here: Article 1, Article 2, Article 3.)

In the previous articles of this Business Planning Series, I focused on the general aspects of why a business needs a business and marketing plan. I began describing the components of a business plan, in particular, the introduction, vision, mission, products or services, and market analysis. This fourth article focuses on the Competitive Analysis, the sixth section of the business plan.

  1. Competitive Analysis

While the market analysis provides key information regarding the needs of prospective buyers, it is also important to conduct competitive analysis to understand the activities and strategies of those who are competing for the same customers. Doing this will help assess–and even anticipate–competitor decisions and moves that may affect the business or its industry.

For example, when determining the business location (or place of sale), it is important to identify the potential competitors in that location. If the competition is (or will be) close to the projected location, the business owner must determine if  the business can effectively compete, given the available market and the value the competitor provides the targeted buyers in the area. The business must also determine how it can differentiate from the competition. This may include offering a new, superior or alternative product or service, and/or offering it at a lower price. An alternative is to find an optimal location where the competition is absent (or minimal) and the market is promising. A similar approach applies to “virtual” or online locations, and it applies to all types of offerings. For example, if the product is a novel, the seller must assess the competing books, how they are being distributed (e.g., through an editorial or self-published, via bookstore or online, and where), their price, genres and categories that would showcase them best to readers, and what makes them a “best seller,” among other aspects.

If “the competition,” wherever it may be, provides a certain unique value its clients enjoy, many businesses assess whether it makes sense to copy or emulate this feature. This process is termed “benchmarking.” Benchmarking studies may be undertaken as needed, at local, regional, and international levels, in order to develop new strategies for product and service development. For example, in the manufacturing industry, competitive benchmarking studies have included the reverse engineering of a purchased product (which is legal), the examination of papers published by employees of the competitor in scientific journals (which may shed light into technologies used in the product), and even “casual” interviews with management or engineers in industry meetings or conferences.

“Competitive Intelligence” studies may help obtain the necessary information to assess a company’s position relative to its competition. However, every business undertaking this practice must exercise caution when obtaining competitor information that may be legally protected.

During the course of investigating the competition, it is important to exercise diligence. In the United States (and other countries), there are laws that protect the intellectual property and privacy of businesses and persons. There is an extensive amount of available information in the public domain to assist the process of competitive analysis, and this is an advantage when performing competitive research. More invasive measures, such as digging through the competitor’s garbage, may or may not be legal, depending on the circumstances. The topics of “Information Protection” and “Intellectual Property,” covered separately from this article, address legal sensitivities and measures that should be followed when conducting business research.

The next article in the Business Planning series focuses on the Management Team’s Experience.

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This article is based on material from the book “Does Your Compass Work? Practical Legal Guide for Florida Businesses,” Copyright © 2008-2015 Yasmin Tirado-Chiodini. All Rights Reserved. This article is provided under a Creative Commons License.

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About tiradochiodini

I am a attorney, entrepreneur and author blogging about business, law, entrepreneurship, writing, books and other subjects.
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