In online retailing, an accurate and current competitive analysis accesses rival merchants' strengths and weaknesses relative to a seller's own operations, providing a significant advantage or identifying opportunities.
For small and mid-sized online retailers, a basic competitive analysis should include a regular, qualitative review of the competitors' websites, prices, product mix, customer service, policies, and marketing. This data can be used both offensively and defensively to improve your bottom line.
The competitive analysis process is a bit frontend loaded, meaning that it will take more time to complete the first time you do it than it will each time you update it.
Identifying the Enemy
Often war or combat is used as an analogy for business competition. On the battlefield, the enemy is that group of people or units that seek to take your possessions or affect your way of life. In online retailing, the enemy is any company that can affect your profit.
Some enemies may be weak while others may pose an imminent threat to sales and revenue. To create a competitive analysis, focus on those competitors that are either an immediate threat or that could become a threat within a year. This should reduce the size of your competitive set to a manageable number.
To help identify these competitors ask two basic questions about your business and your market.
1. What is your industry segment?
2. Who are your customers?
With the answers to these questions in hand, look for the competition. For example, imagine that you answered the first question with “tack and equestrian supplies,” meaning horse saddles, bridles, brushes, and similar. Next, imagine that you answered the second question — Who are your customers? — as “women living in suburban or semi-rural areas who ride and show horses.”
With this information in hand, make a list of potential competitors, by noting the following.
- Any competitor you already know.
- Retailers that appear at the top of organic search result pages for important queries.
- Retailers that purchase pay-per-click advertising for industry-specific keywords.
- Retailers that advertise in industry-related publications.
- Retailers that appear in dealer locators (from suppliers or manufacturers).
- Retailers that tweet about the industry on Twitter.
- Retailers that post about the topic on Facebook.
Using the tack and equestrian example above, such a merchant might end up with a list competitors like the one below.
- State Line Tack
- Tractor Supply Company
- Dover Saddlery
- Jeffers Equine
Identify What Impacts Sales
Customers may choose a merchant for any number of reasons, including how much they trust the retailer or like the retailer's business philosophy. You should make a list of the factors that influence your customers. Below is a list of several areas to consider.
- Website aesthetics. Remember, how good a site looks impacts how much it is trusted.
- Website content. Includes blogs, articles, videos, and product descriptions.
- Product selection. Does the site have one type of widget or several to choose from.
- Price. Pricing relative to the market.
- Customer service. A site with a phone number might be better than one that only allows email contact.
- Shipping options. Is free shipping available?
- Social media presence. Identify the social sites and the activity on them.
- Email marketing. How is email used?
- Search engine position. In organic search results.
- Advertising. Pay-per-click, banners, video, other.
- Other marketing. Trade shows, blog posts, other.
Rate the Competition
Now, objectively rate your competition for each of these categories on a scale from one to ten, where ten is best. Consider awarding the competitor that performs best in a particular area a ten. Another competitor that did half as good a job would receive a 5 and so on.
Be sure to actually research each competitor. Once the scores have been awarded, arrange them in a competitive array. An example array follows.
Using the Analysis
If left as a chart saved in your hard drive, this competitive analysis would not be terribly valuable to your business. So its findings should be used for business decisions and improve your own operations.
For example, if one competitor is leading the pack in customer service, it may make since to implement similar or better policies. Likewise, if you discover that you have a significant advantage in social media marketing, look for ways to further your lead. If you notice that the entire competitive set is lacking in one area, consider focusing some of your attention there.
With competitive analysis, you can obtain information that you can use to improve your business's position relative to your competition. Revisit your analysis about every three months, monitoring changes in the competition and how well your business performs in comparison.