What is Competitor Analysis?

Competitor analysis is a business term used to describe researching primary and secondary competitors. Such analysis occurs when a company conducts formal or informal studies regarding what its competitors are doing. Analyzing competitors can be useful to find a benchmark for quality, to assess threats, and to determine the potential for growth.

Every company has competitors. These may be primary and secondary competitors. For example, a movie theater's primary competitors are other movie theaters, while its secondary competitors may be home movie rental chains.

Analyzing the behavior of competitors can be a vital tool for a business. Competitor analysis normally involves looking at the strengths and weaknesses of the competition. The analysis may be a wide scale analysis of the whole company or may be a more focused analysis, such as a competitive analysis only of marketing strategies.

Observing a competitor also allows a business to see what the competitor is doing well. The company can then determine how to incorporate some of those successful strategies into its own business model. Ideally, the company can also learn how to make improvements on the strategies it incorporates.

Competitor analysis also allows a company to see his competitors' weak spots. This can provide the company with an opportunity to use those weak spots to recruit new customers or to emphasize its superiority. For example, if a company conducts a competitor analysis and determines that customer service is lacking within the industry, it can tout itself as the best option for customer service, thus attracting customers who are tired of the poor quality service they are getting.

Threats can also be easily and quickly identified through competitor analysis. For example, a company may be able to see that one of its competitors is gaining market share. This can be an important fact, since the company can then take steps to ensure it is not forced out of business by the growth of the competitor.

Finally, competitor analysis can also help a company determine the potential for growth. By observing the entire customer base, including those who currently work with competing businesses, a company can get a broader understanding of the market. This can allow the company to determine how much it can expand within that market, and how best to do so, given the current behavior and activity of its competitors.