Researching the competition will provide you with a clear picture of potential threats, opportunities, and strategic questions developed from your competitors' current strategies, weaknesses and strengths.
The first step when researching your competitors is to identify the competition. There are essentially two ways to identify competitors:
1. Customer groupings -- Competitors are grouped by how intensely they contend for the buyer's dollar.
2. Strategic groupings -- Competitors are grouped based on their competitive strategies.
There are several ways you can group competitors according to competition for the customer's dollar. In most industries, competitors can be evaluated based on how intensely they will be competing with you. There will usually be a core group of direct competitors, others that don't compete as intensely, and those that are not in the direct sphere of competition but are still applicable. Usually, the most in-depth research will be focused upon the competition that will be in direct conflict with you for the buyer's dollar. Businesses that produce very little competition will be given less scrutiny.
Instead of grouping competitors according to intensity, you can group them based on market segments. As we discussed above, there are several segment variables you can choose from in order to group your competitors. You will have to decide which are the most important variables.
To determine the intensity of competition within the industry, you can send out a questionnaire to buyers of the product you are proposing to market. You will ask them a series of brand loyalty questions: Which brand do they currently buy? Have they tried other brands? If so, which brands have they tried? Have them rank the different brands of products according to preference. The idea behind this type of questionnaire is to help you see the market and the competition from a customer's point of view so you can identify groupings from a conceptual as well as practical standpoint.
Grouping competitors by strategies is far different from grouping them by customer viewpoint. The strategic group concept relies heavily upon classifying competitors by similar competitive strategies that are pursued over a period of time, uniform characteristics, or similar assets and skills. The parameters used to define strategic groups are referred to as entry and mobility barriers. Usually these barriers include items such as advertising budgets, distribution channels, research and development budgets, and so on. The point is to develop barriers that specifically define a group of competitors based on their strategic tendencies.