Sustainable Business/Competitor analysis
Let’s presume at this point that you’re satisfied there’s a sustainable demand for your product or service. The next question is, what market share can you hope to gain? There is always going to be competition (direct or indirect) for the customer’s dollar, so you need to study the competition.
This chapter will help you to:
identify your obvious and less obvious competitors
Pinpoint your competitors onlineEdit
Find precisely where your competitors are located on the online Yellow Pages service. You can find businesses by location and distance radius and view their opening hours. Some ads include a link to their websites so you can pay an instant visit to review exactly what they’re offering. www.yellowpages.co.nz
Your direct competitorsEdit
Researching your direct competitors is essential. These are the businesses selling a directly comparable product or service to yours – the ones that you’ll initially be ‘up against’ if you go ahead and launch your business.
For example, if you’re planning to develop and sell a new accounting software package, your direct competitors could be:
- other specialist accounting software firms
- general retailers selling existing off-the-shelf accounting packages
- computer resellers ‘bundling’ accounting software with hardware purchases.
If you’re to succeed, you’ll need to distinguish your business from your direct competitors and successfully woo their customers. To do this well, at the very least you need to know:
- what they offer
- what they charge
- what they do well (such as service)
- what they don’t do well (such as quality)
- where there are gaps you can exploit.
Where do you find them?Edit
Even if you know your intended market reasonably well, be wary of assuming you know who all your direct competitors are. Not every successful business has a large shop frontage or a high market profile, and you’ll need to dig deep if you want to find out how many more may be ‘out there’.
- Search specific categories in online business directories such as Yellow Pages or Universal Business Directory (UBD).
- Walk around the area where you intend to locate your business.
- Ask people if they know of any similar businesses.
- Read trade, industry and general business publications.
- Review business and industry websites.
Once you know who they are, researching your direct competitors might be easier than you think. All businesses (even those that take a low-key approach) are in the business of self-promotion – it’s how they attract customers – so there’s usually plenty of freely available information about them and their products and services.
Prepare an analysis sheet for each of your competitors. Include any additional comparisons relative to your business
Business name - Location - Products/services - Positioning - Prices - Key competitive advantage - Other critical factors
- Review their websites and subscribe to their online newsletters.
- Search their business name and the names of their key staff online.
- Read their annual reports and marketing material.
- Attend trade shows where competitors exhibit.
- If possible, visit their premises and buy something.
Save time – go to the libraryEdit
Most city libraries offer a business research service and may be able to compile profiles of your competitors, their customers and other competitive information at a very reasonable cost. www.nzlibraries.com
Attend trade showsEdit
Attending trade shows as a visitor is a great way to gather market intelligence and collect competitor information. You might even get lucky, with someone on the stand unwittingly telling you all about the business and how it operates.
www.business.govt.nz (Select ‘Business calendar’ to search for upcoming trade shows.)
Your indirect competitorsEdit
Indirect competitors are those offering a related product or distraction that a customer could choose to purchase instead of yours. You’ll need to think laterally to identify your indirect customers, as they may not be immediately obvious.
For example, if you plan to open a hairdressing salon:
- your direct competitors will be other hairdressers within your target area
- your indirect competitors might be a local department store with an extensive range of hair accessories and in-store makeovers, or a local community education provider running ‘how to’ demonstrations or workshops in the evenings and on weekends
- even more indirect may be the customer’s decision to spend the money in other ways (such as on buying movie tickets for the children instead of on a haircut).
The point is that there are always other options on which people or businesses can spend their money, and you need to be aware of these alternatives.
Focus on the immediate threats firstEdit
Although it’s wise to be aware of your indirect competitors when you’re in business, focus first on your direct competitors as they’ll be most likely to launch a quick challenge once you start.
What is your competitive advantage?Edit
Once you know what competitors offer, you can compare your similarities and differences to identify your points of difference, then develop these into a compelling competitive advantage.
Most of us are creatures of habit, preferring to stick with the familiar rather than trying something new. So to entice customers away from the competition, consider these questions:
- What precisely is your competitive advantage or unique selling proposition (USP)?
- How do you plan to communicate your USP to your customers?
This is the one key question lenders and investors are likely to ask you. What makes your business different?
If you’re concerned about taking on larger or well established businesses, remember that being a small business can be a distinct advantage in itself.
You’re often better placed to:
- make faster decisions (fewer management levels than in larger businesses) and therefore respond more promptly to customer requests
- offer guaranteed personal contact
- provide flexible opening hours or accessible after-sales service and support.
These seemingly simple differences can actually make a significant difference to the customer.
- Promote your competitive advantages
Don’t expect customers to guess your points of difference. Competitive advantages are only advantages if you strongly promote them.
List your top three competitive advantages
- Strengths and weaknesses
Promote your strengths and minimise your weaknesses.
Your strengths can give you a competitive advantage. For example, you might have excellent product or technical knowledge, or be very well networked and respected in your intended industry sector.
Look for ways to minimise your weaknesses. For example, your competitor may have five branches nationwide, while you have only one shop. But could you achieve the same market reach through a website? If your competitor has greater purchasing power (getting products more cheaply) can you form an alliance with similar businesses in different towns or regions to gain more buying leverage?
Reducing the effects of competitorsEdit
Try to anticipate how your competitors will react to your encroaching on their ‘territory’ once you start operating. They might make an effort to drive you out of the market before you get established.
- How could you cope with a massive discount battle?
- What other tactics do you think they might employ?
Just as there’ll always be change, there’ll always be competition in the marketplace. Sometimes businesses can benefit from clustering together (think of areas of a city devoted to bars or clothing shops). In other cases proximity can damage prospects. Imagine what would happen to your business if someone set up shop alongside you. Would this boost or damage your trade?
Create barriers against competitorsEdit
To be sustainable long term, you must be able to defend your business and reduce the effects of competitors encroaching on your market.
If your business flourishes, what’s to stop other people copying your idea? Copycats can significantly damage the viability of your business, so use some straightforward and relatively inexpensive ways to protect your business even before you start trading.
Try to create barriers against your competitors that will make it harder for them to compete. For example, could you secure an exclusive operating license or an exclusive deal or distributorship?
- Exclusive operating license.
Imagine you’re planning to operate a jet boat tourist attraction and have managed to secure a commercial licence to operate on the river. No one else is running a similar attraction at this stage, but if yours turns out to be successful, they might. Can you ensure your licence is exclusive or that only a limited few will be issued?
- Exclusive deal or distributorship.
Can you sign an exclusive deal with a particular supplier, effectively restricting competitors’ access to your products?
- Protect your intellectual property
Unless you’ve invented something, you may not think you have any intellectual property (IP) to protect. However, even your business name and logo have potential value as they might be the very thing that gets you recognised in the marketplace.
Intellectual Property Office of New Zealand
Find out more about protecting your IP in business from the Intellectual Property Office of New Zealand (IPONZ) website. Its website has details about of patents, trade marks, the value of IP and other useful IP information.
List ways you will protect your business to create barriers against the competition (e.g. licences, IP protection, domain name registration)
- Protect your brand
Your business name and logo become a brand in the marketplace from the day you start business. Take steps to protect them. Before you design your logo, stationery and signage, check that no one else is using your trading name. Can you imagine discovering after you’ve got all your stationery printed that there’s already an established business with the same or a confusingly similar name? How much would it cost to re-design and re-print everything?
These steps will help you to protect your business name before you start trading.
- If you intend to form a company, reserve your chosen name through the Companies Office website (www.companies.govt.nz). As a competitor will be unable to register a company name that is identical or almost identical to an existing (or previously reserved) one, forming a company offers you a degree of protection.
- If you intend to start as a sole trader or partnership, check both online and printed directories to ensure that no similar trading name exists. Also enter the name in search engines such as Google or Yahoo to see what comes up. (Tip: by adding ‘NZ’ after the name you can check on local clashes first.)
- Check for clashes or confusingly similar names on the IPONZ website (www.iponz.govt.nz). Consider registering your trading name and logo design as a trade mark to deter imitators.
- Secure your web domain name. Once you’ve registered your web domain name it can’t be used by anyone else.
- Do a trade mark search
Do a trade mark search on the IPONZ website to check if anyone has already registered something similar to your intended name as a trade mark.
- Protect your ideas
If you have a totally new product or service, being ‘first to market’ may give you an initial advantage, but if it’s profitable, it’s quite likely that others will eventually try to adapt or copy your idea.
Depending on the level of commercial sensitivity surrounding your product or service, it may pay to talk to a specialist IP lawyer. This is particularly important if you plan to run sample tests in the market, and while this may seem an unnecessary expense at the moment, failing to protect your idea could be a lot more costly in the long term.
Owning a patent for an invention or new manufacturing process can exclude anyone else from commercialising that idea for a period of 20 years. IPONZ deals with patent applications in New Zealand.
- Ask for professional recommendations
Ask a relevant industry association or your local Chamber of Commerce if they can recommend a specialist IP lawyer who is already familiar with your industry or market. This information can be found online.
Copyrighting written material is a quick and easy way to gain a level of protection for any original creative work. To indicate that your material is copyright protected, simply including the symbol © together with your business name and date gives you a certain level of protection.
As with any legal protection, it can pay to talk to a specialist lawyer.
- Copyright Council of New Zealand
The Copyright Council of New Zealand website carries information and up-to-date news about copyright protection.
- Creative Commons
Creative Commons defines the spectrum of possibilities between full copyright and the public domain. From all rights reserved to no rights reserved. The licenses help you keep your copyright while allowing certain uses of your work — a “some rights reserved” copyright.
- Maintain customer focus
Another way to create barriers for your competitors is to avoid being distracted by what they do. After all, you’re going into business to do business with your customers, not your competitors. Aim to maintain your customer focus and provide excellent service.
- Ensure that you have enough staff to provide satisfactory customer service consistently and build good customer relationships.
- Focus on promoting one or two key competitive advantages. Too many can confuse customers.
- Implement effective business systems to provide consistent standards.
- Empower staff to resolve most customer service issues without delay.
- Resist the temptation of a price war with your competitors. Concentrate instead on adding value to what you offer.
- Position consistently
Aim to get your positioning against competitors right from the start. Even though you might know where you want to position yourself in the marketplace, ultimately it’s the consumer who decides where they think you fit. However, you can influence the way they position you.
If you’re aiming for the high quality end of the market, but you present an image that’s inconsistent with this, it will be hard to persuade people differently once they’ve made up their minds.
If it’s not feasible for you to position yourself where you need to be (for example, you may lack the funds to position your product in the luxury end of the market), consider revising your idea or holding off until you can source more funding.
Four popular ways small businesses choose to position themselves
- People – level of expertise or depth of knowledge.
- Product – range, price, service.
- Location – ease of access, prompt delivery.
- Image – user friendly, upmarket, leading edge.
- Review your situation
Analysing the competition and different ways you can feasibly protect your business against them leaves you better placed to gauge potential market share.
- Competitor analysis checklist
- Research your direct and indirect competitors.
- Compare their products and services to identify strengths and weaknesses.
- Define then promote your unique selling point or competitive advantage.
- Consider ways to reduce the influence of competitors.
- Identify and implement measures to protect your business.
The next stage of your feasibility study is to assess if you can afford to get your business up and running.