Conducting a Competitive Analysis - Is There Room for Your Business?*

File C5-29
Updated April, 2010

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Identifying the competition in a market helps determine if your business idea is feasible. Information gathered during a competitive assessment also directs how a product/service should be positioned within the market. To conduct a competitive analysis, you need to answer four questions:
1. Where do my target market customers shop for similar items?
2. Is there room for my product in its market?
3. What competitive advantage does my product hold?
4. How should my product be positioned within the market?

To begin answering these questions, do your research. Initial competition research and assessment might not be overly sophisticated and may include personal observation. Don't hire someone to do what you can do yourself - hire research firms to find information that isn't available publicly.

Where do my customers shop?

Knowing where your customers shop determines the products with which your product will compete. Identifying specific distribution outlets is difficult, given the vast array of options available in today's competitive market. Consumers have access to local and regional stores, national merchandisers, and thanks to the Internet, global distributors. Most small, value-added startups will focus on marketing within their local markets, narrowing direct competition to products available within the local market.

Is there room for my product in its market?

Once you identify where your customers shop, you need to determine if there is room for you to compete within the market. To do this, you need to identify all competing or substitute products. Sophistication of this process will vary, depending on where your customers shop. For those businesses whose customers shop within local markets, begin your research behind the wheel of your car. Conducting "windshield surveys" is a fairly inexpensive method to collect and examine the competition. For a food product, you can simply walk up and down the aisles in a grocery store to identify competitors within a particular food category. From this investigation, you can gather first-hand information as to where competing products are sold, what features the products possess, how the products are priced, and how they look in the store. Equipped with names of competitors and other information gathered, you then can use the Internet or your local library to learn more about your competition.

To determine how your product compares to the competition, you must analyze the strengths and weaknesses of the competitors and their products. You can use an instrument known as a Competitor Strength Grid (see below) to help you conduct a windshield survey.

To illustrate this process, consider evaluating competition in the frozen entrée category. This example is for illustration purposes only and does not accurately represent the current market. Suppose your product is an individual-serving frozen entrée branded "Missouri Meals". Your Competition Strength Grid may look something like this:

Competition Strength Grid

Creating an inventory list will help identify where gaps exist in current market competition. If a gap does not exist, you will have to compete directly with an already-established product, a difficult, profit-limiting task. Ranking competitors, from weak to strong, illustrates how you compare with competition. To use the chart, select the variables that are most important when purchasing items within your product category. The variables used above are for example purposes only. Once variables have been selected, graph each competitor (including your product) along the continuum via an initial, symbol, color, etc. You can attain information to help you chart competition by first-hand observation, asking retail managers, questioning consumers of the product, etc.

Similar to the last inventory, the following grid includes more business-focused activities rather than product-specific ones:

Competition Strength Grid

From these activities, you can determine if your company and its product can fulfill an unmet need or create a competitive advantage.

What competitive advantage does my product hold?

Gaps in competition identify areas in which smaller, value-added companies can establish competitive advantages. The goal - exploit what sets you apart from the competition! It doesn't matter whether the advantage is size, color, taste, variety, etc. so long as the competitive advantage exists, which enables you to charge higher prices.

Consider apples, for example. Apples are separated into three basic categories based on quality differences: juice, bags, and 88-count. Profitability increases with each quality difference. Yet, the product is still considered a commodity within its category. Businesses selling 88-count apples have to exploit the value of an 88-count apple over that of a bagged apple plus exploiting the advantage one 88-count apple has over another by color, firmness, freshness, taste, etc.

How should my product be positioned within the market?

Product positioning is a result of competition and the exploitation of competitive advantages. Filling gaps in an existing market allows a company to create a competitive advantage and position products in a way that makes the product more attractive than other existing options.

For example, consider bottled water. Some argue that no differentiation exists for the bottled water market. Yet, it does. Bottled waters range in brands, distribution strategies, perceived value and quality, and images. According to the Beverage Marketing Corporation, Aquafina is the leading water brand with 11.3% market share. It separates itself from the competition by advertising an “eco-friendly” bottle that uses 50% less plastic than bottles made prior to 2002. Evian, in contrast, chose to fill a niche by establishing a classic, upscale, premium image targeted at people in a higher social class. Due to positioning its water in this manner, Evian ranks tenth with 1.7% market share.

According to the Beverage Marketing Corporation, the leading water brands in 2003 were:

Top 10 U.S. Bottle Water Brands by wholesale dollar sales and market share

Market Share

Sales Revenue,
in million dollars

Percentage of
Market Share

1. Aquafina (PepsiCo)

$936

11.3

2. Dasani (Coca-Cola)

$834

10.0

3. Poland Spring (Nestle Waters)

$649

7.8

4. Arrowhead (Nestle Waters)

$546

6.6

5. Deer Park (Nestle Waters)

$356

4.3

6. Crystal Geyser (CGWC)

$335

4.0

7. Ozarka (Nestle Waters)

$236

2.8

8. ZephrHills (Nestle Waters)

$215

2.5

9. Ice Mountain (Nestle Waters)

$208

1.7

10. Evian (Coca-Cola/Danone)

$145

1.7

http://www.mind-advertising.com/sectors/sector_softdrinks.htm

The bottom line

Competition within a market directly affects feasibility of new agribusinesses. Competing head-to-head with established businesses likely will not yield the profits necessary for small businesses to succeed. What does create an environment for success is providing consumers with products that are different than other options, creating competitive advantages. The advantage can be time saved, money saved, enhanced performance, a new taste, a new image, packaging changes, etc. What the advantage is isn't as important as that an advantage exists - an advantage you can provide better than anyone else.

* Reprinted with permission, Agricultural Marketing Resource Center, Iowa State University.

 

Nancy Giddens, agricultural extension marketing specialist, Missouri Value-added Development Center, University of Missouri. Reviewed by Connie Hardy, Iowa State University Extension