Competitive Analysis: The Definition & 7 Frameworks That You Should Know

What Is Competitive Analysis?

Competitive analysis is a strategic approach in marketing where businesses identify and evaluate their competitors to understand their strengths, weaknesses, opportunities, and threats. This process involves scrutinising various aspects such as market share, product quality, marketing strategies, customer service, and pricing. 

By gathering this data, a company gains insights into what makes its competitors successful or where they fall short. This analysis helps businesses in benchmarking their performance against others in the industry and in identifying gaps in the market.

How Does Competitive Analysis Help Marketing?

Understanding the competitive landscape is crucial in marketing as it enables businesses to make informed decisions and develop strategies that provide them with a competitive edge. It helps in identifying market trends, potential areas for innovation, and unmet customer needs. 

Moreover, competitive analysis aids in anticipating competitors’ moves, enabling businesses to stay ahead or effectively counteract them. This strategic tool is vital for adapting to changing market conditions, targeting marketing efforts more effectively, and ultimately driving business growth.

Understanding Competitive Analysis Frameworks

1. SWOT Analysis

SWOT analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieving that objective. 

Internal Factors

• Strength: This component involves identifying the internal attributes of the organisation that are advantageous and can contribute positively towards achieving its objectives. Strengths are resources and capabilities that the organisation excels in, differentiating it from its competition. 

Examples include a strong brand reputation, a loyal customer base, unique technology, a skilled workforce, strong financial resources, efficient processes, or any other aspect that adds value to the organisation and enhances its competitive position.

• Weakness: These are internal factors that may hinder or negatively impact the organisation’s performance. Weaknesses are areas where the organisation is lacking or performs poorly compared to competitors. 

This might include inadequate research and development facilities, outdated technology, insufficient marketing strategies, weak brand recognition, financial constraints, or gaps in expertise. 

External Factors

• Opportunities: Opportunities are favourable situations in the external environment that can be used to strengthen the organisation’s position. These might include market growth, changes in consumer tastes, technological advancements, regulatory changes that might open up new avenues for business, or other external conditions that can be advantageous if seized upon.
• Threats: These are external factors that could negatively affect the organisation. Threats are potential problems or risks posed by unfavourable trends or developments in the external environment. 

They might include emerging competitors, changes in regulatory policies, shifts in consumer preferences, economic downturns, supply chain disruptions, or technological changes that could make current products or services obsolete. Understanding threats is important for an organisation to develop strategies to mitigate or avoid them.

2. Strategic Group Analysis

This framework helps in identifying groups of companies that have similar business models or strategies. Companies within the same strategic group are direct competitors, whereas companies in different groups may not be competing directly with each other. 

The concept is based on the idea that industries often have groups of companies engaging in similar strategies, such as targeting the same customer base, using similar distribution channels, or adopting similar pricing strategies.

The steps of this competitive analysis are:

• Identification of Strategic Groups: Companies in an industry are clustered into groups based on key dimensions like price, quality, target customers, geographical coverage, and distribution channels.
• Understanding Competitive Rivalry: This analysis can show the intensity of competition within and between these groups.
• Analysing Mobility Barriers: It involves studying the barriers that prevent companies from moving from one group to another, such as brand loyalty, or technological capabilities.
• Strategic Opportunities and Threats: Identifying groups allows companies to assess opportunities and threats more accurately. For instance, a group with few competitors and high entry barriers could be very attractive.

Now, let’s put this into a real-world scenario. Imagine you’re building a new e-commerce that is entering the Australian market. You need to analyse the steps mentioned to understand where are the gaps in the market and how should you position yourself strategically.

Groups	Large Generalist Platforms	Niche Retailers	Discount & Deal Platforms	Local Artisan Platform
Example Companie	– Amazon – Australia eBay Australia	– The Iconic  – Booktopia	– Catch.com.au – OzBargain	Etsy
Strategic Characteristics	– Wide range of products – Focus on a broad customer base, pricing, and convenience	– Specific categories – Specific segments -Specialised products	– Focused on budget-conscious customers  – Daily deals	Specialising in handmade, artisanal products
Marketing Tactics	Focus on SEM, personalised ads, email marketing, big data	– Content Marketing  – Influencer Collabs – SEO	– Email marketing – Pricing strategy ads – Retargeting campaigns  – Partnerships with deal aggregators	– Community marketing – Social media campaigns  – Content marketing
Competitive Position	– Extensive product range – Established brands  – Logistic networks	– Strong in their niche – Deep understanding of the customer base	Attractive to price-sensitive customers	Appeals to consumers looking for unique, locally-made products and personalisation.

Analysis and Insights:

• Differentiation in Market Positioning: There’s a clear distinction in the market positioning between generalist platforms and niche/speciality retailers.
• Digital Marketing Approaches: Generalist platforms rely heavily on broad-reaching digital marketing tactics, while niche platforms focus more on content and community engagement.
• Customer Base: The generalist platforms cater to a wide audience, whereas niche platforms have a more targeted customer base.
• Barriers to Entry and Mobility: Moving from one group to another (e.g., from a niche platform to a generalist platform) requires significant changes in business models and marketing strategies.
• Opportunities for New Entrants: New entrants might find opportunities to address gaps in niche markets or offer unique value propositions that aren’t well-served by existing players.

3. PEST Analysis 

PEST stands for Political, Economic, Social, and Technological factors. Each of these elements can influence a business’s operations, profitability, and strategies in various ways. By analysing these external factors, businesses can gain insights into potential opportunities and threats in their market environment.

Political Factors: This includes government policies, political stability or instability in a market, tax policies, trade restrictions and tariffs, labour laws, and environmental regulations. Political factors can influence business operations significantly, affecting costs, demand, and overall business stability.

Economic Factors: These are related to the economic environment in which the business operates. Factors include economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers and businesses, and broader economic trends. Economic factors can impact purchasing power, business costs, and investment opportunities.

Social Factors: This aspect involves cultural, demographic, and social influences on a market. It includes population demographics, cultural trends, attitudes towards certain products and services, lifestyle changes, education levels, and social mobility. Social factors help businesses understand consumer needs and preferences and can influence marketing strategies.

Technological Factors: These include technological advancements and innovations, the rate of technological change, research and development activity, automation, and the adoption of new technology. Technological factors can impact operations, product development, and market positioning. They can offer opportunities for innovation but also pose threats by rendering existing products or processes obsolete.

4. Business Model Canvas

The Business Model Canvas is a strategic management tool used for developing new business models or documenting and improving existing ones. In the context of digital marketing and competitive analysis, it offers a structured visualisation to understand and analyse how different components of a business relate to each other and the market environment. 

The Business Model Canvas is divided into nine key segments:

• Value Propositions: What unique value does the business offer to its customers? This could involve unique content, user experience, personalised services, or innovative online solutions.
• Customer Segments: Who are the business’s target customers? marketing strategies are often tailored based on different customer segments’ behaviours, preferences, and needs.
• Channels: How does the business reach its customers? This includes various digital marketing channels like social media, email, search engines, and websites.
• Customer Relationships: What type of relationship does the business maintain with its customers? Digital marketing plays a crucial role in building and maintaining these relationships through engagement strategies, customer service, and personalised communication.
• Revenue Streams: How does the business earn revenue? Understanding this helps in aligning digital marketing strategies with revenue goals, like increasing online sales, subscription services, or advertising.
• Key Resources: What key resources are required to make the business model work? This might include digital platforms, marketing tools, data analytics capabilities, and skilled personnel.
• Key Activities: What are the most important activities in the business model? These could include content creation, online campaign management, data analysis, and SEO optimisation.
• Key Partnerships: Who are the key partners and suppliers necessary for the business model? 
• Cost Structure: What are the business’s major cost drivers? Costs might include advertising spend, software subscriptions, content production costs, and labour.

In competitive analysis, the Business Model Canvas helps in understanding not only your business model but also that of your competitors. By mapping out competitors’ business models, you can identify their strengths and weaknesses, revenue strategies, key customer segments, and how they leverage digital marketing channels. This analysis can reveal gaps in the market, areas for improvement in your strategy, or potential competitive advantages.

5. Porter’s Five Forces

Porter’s Five Forces is a framework developed by Harvard Business School professor Michael E. Porter in 1979. It is used to analyse the industry structure and corporate strategy. The framework considers five forces that determine the competitive intensity and, therefore, the attractiveness and profitability of an industry. These forces are:

Threat of New Entrants: This force examines how easy or difficult it is for new competitors to enter the industry. Factors like initial investment, access to technology, economies of scale, and government policies can influence this threat. High barriers to entry can make an industry more attractive and profitable.

Bargaining Power of Suppliers: This force looks at the power of suppliers to drive up the prices of inputs. Industries where suppliers are more concentrated or where there are few substitutes for the supplies have stronger bargaining power, potentially reducing profitability for companies in the industry.

Bargaining Power of Buyers: This force assesses how much pressure customers can place on businesses. This is driven by the number of buyers, the importance of each buyer to the business, and the cost to the buyer of switching from one supplier to another. Strong buyer power, where customers have many choices and low switching costs, can reduce industry profitability.

Threat of Substitute Products or Services: This force is about the availability of products or services outside of the industry that can be used as replacements. A high threat of substitutes can reduce industry attractiveness as customers might switch to alternatives.

Rivalry Among Existing Competitors: This force looks at the degree of competition between existing players in the industry. High competition, indicated by many competitors, similar products and services, and low switching costs, can lead to price wars and reduced profitability.

6. Perceptual Mapping

Perceptual mapping, also known as positioning mapping, is a technique used in marketing and competitive analysis to visually display the perceptions of customers or potential customers towards a product, brand, or company. The map is created using a two-dimensional graph, illustrating how consumers view a brand about its competitors based on various attributes and qualities. This tool is particularly useful for understanding how a brand is positioned in the market compared to its competitors.

Key Aspects of Perceptual Mapping:

• Attributes Selection: Commonly, two key attributes are selected that are most relevant to the target market and industry. These attributes could be anything from price, quality, luxury, reliability, user-friendliness, innovation, etc. The choice of attributes is crucial as it determines the basis of comparison.
• Consumer Perceptions: Data for perceptual maps usually comes from market research, where consumers are asked about their perceptions of different brands based on the selected attributes.
• Spatial Representation: Brands are plotted on the map according to how they score on the chosen attributes. The proximity of brands to each other indicates how similar they are perceived in the minds of the consumers.
• Identifying Market Gaps: The map can reveal gaps in the market where there are consumer needs or preferences not effectively met by current offerings.

7. Growth-share Matrix

The Growth-Share Matrix, also known as the BCG Matrix, is a strategic business tool developed by the Boston Consulting Group in the early 1970s. It’s used in competitive analysis to help companies allocate resources among their different business units or product lines. The matrix categorises these units into four quadrants based on two dimensions: market growth rate (indicating market attractiveness) and relative market share (indicating competitive strength).

The Four Quadrants of the Growth-Share Matrix:

• Stars: These are units with high market share in fast-growing industries. Stars are seen as market leaders and can generate significant income. However, they also require substantial investment to maintain their position and support growth. The strategy often focuses on investing and growing these units.
• Question Marks (or Problem Children): These units have a low market share in a high-growth market. They are opportunities that require a lot of resources and investment to increase market share. The strategic decision is usually between investing heavily to turn them into Stars or divesting if the chances of turning them into market leaders are slim.
• Cash Cows: These are units with a high market share in a slow-growing industry. They typically generate more cash than is required to maintain the business. Cash Cows are often the financial backbone of a company, providing the cash necessary to support other units. The strategy usually involves maintaining these units for continuous cash flow with minimal investment.
• Dogs: Units with low market share in a low-growth market. Dogs may barely break even or even be unprofitable. Strategic options might include divestiture or liquidation, as these units are often considered drains of resources.

In summary, understanding and effectively utilising competitive analysis frameworks is crucial for businesses striving to remain relevant and competitive in today’s rapidly evolving market. With a plethora of tools and techniques available, the key to success lies in choosing the right framework to gain actionable insights. 

This is where The Digital Cellar, your all-in-one digital marketing agency, steps in. Our team of experts specialises in bespoke competitive analysis tailored to your unique business needs, ensuring you’re not just equipped with data, but with strategic insights to drive your business forward. Whether you’re looking to refine your market position, explore new opportunities, or simply understand your competitive landscape better, The Digital Cellar is here to illuminate your path to success. Get in touch with us today, and let’s transform data into your competitive advantage.