Being in a crowded market isn’t easy. Whatever your offerings, many other companies out there offer similar products or services. The success of your product design and marketing strategy largely depends on what you know about your market.
Competitive analysis is an essential part of product research. It allows you to identify major competitors, analyze their strengths and weaknesses, and then adjust your product and marketing strategy based on that information. The goal of a competitive analysis is to refine how you position yourself in the market. By carrying out strong competitive analysis, you'll have a holistic review of the market that will help you create sustainable products.
Competitive Analysis: A Step-by-Step Guide
Typically, you should conduct competitive analysis in the early stages of product design. The information you gather during the analysis will have a tremendous impact on both your product design decisions (e.g., features you want to add to your product to make it more relevant to your target audience) and your marketing strategy (e.g., how you plan to promote the product on the market to increase the client base).
1. Identify What You Want
The first step in your process should always be to state the goal of the analysis. Ask yourself, “What do I want to achieve with this analysis?” The answer to this question should be measurable. That way, you avoid generic responses such as “Improve product conversion rate” in favor of something like “Improve product conversion rate at least 30 percent.” A clearly defined goal will help you prioritize your effort and make the analysis more useful.You’ll get more relevant results that will allow you to focus your design and marketing efforts more precisely.
2. Define Your Ideal Customer
Before starting a competitive analysis, you need to have a clear answer to the question, “Who is my ideal user/customer?” Knowing your target customer will help you to position your product in the market correctly. You should invest time in user research and create both of the following:
- A user persona is an archetype of your ideal user. This archetype is important for product designers because they will evaluate every product design in accordance with the persona.
- A buyer persona is an archetype of your ideal customer. This archetype helps marketing departments to understand what message resonates best with a target group.
Personas bring a critical ingredient to your product design process — empathy. As a designer, you should always think about how your users will interact with your product. This perspective will allow you to switch from just thinking about the features that your product has to prioritizing the value that your product brings to the people who use it.
If you’re just beginning the product design process, use the Who-What-How technique to organize your thoughts:
- Who. Who is my user/customer?
- What. What problem does my product solve for the user?
- How. How will the product solve this problem?
3. Identify Your Competitors
Obviously, to carry out competitive analysis, you’re going to need to understand who your competitors are. This involves identifying both direct and indirect competitors. The first type offers products or services similar to your own in your market niche. A competitor might also be a business that operates in your geographic region with a similar target audience. Uber and Lyft are direct competitors in the rideshare sector, for example.
The second type, indirect competitors, offer products or services in a different niche, but their products or services can satisfy the needs of your target market. Uber and Google are indirect competitors in the sector of self-driving cars. Both companies are working on self-driving cars, but Uber wants to use the vehicles primarily for ride-sharing or food delivery. By contrast, Google plans to use such vehicles for a range of tasks, including automated street mapping for Google Street views. Despite their differing goals, the fact that both companies work with self-driving cars means they might end up engaging in some indirect competition.
The second question you need to answer here is how many competitors you should track. After all, a company rarely competes against just one rival. Although there is no strict rule on the number of competitors you can track, I recommend starting with a list of three to five companies to make things manageable. Create comparison criteria based on business metrics (i.e., customer base, product pricing, etc.) and select the companies that match the criteria.
4. Analyze Your Competitors’ Products
When it comes to product design, you can rely on standard principles for interface design called heuristics to evaluate the strengths and weaknesses of any product. Heuristic evaluation is a method of analysis in which an expert evaluates the product according to a specified set of heuristics. Your product team should start by defining the heuristics for the analysis. The team can start with universal 10 heuristics of product design or create its own based on what they think is important. The goal of this step is to understand your competitors’ flaws. This information helps you identify the opportunities for your product and see the areas that need improvement.
5. Analyze How Your Competitors Market Products
Next, explore the social media presence of your competitors. What channels do they use to promote the products/services? Do they rely on social media or use Google Ads services? The answers to these questions will help you prioritize your effort when it comes to promoting your products. At the same time, you shouldn’t just use the exact same strategy for your product. Remember that you need to adapt the approaches that your competitors use to fit your business.
6. Analyze Target Audience’s Level of Engagement
The previous point will help you identify the right channels for spreading your message. Just using the right channel isn’t enough for product success though. You also need to ensure that the message resonates with your audience. In other words, you need to focus on the content of your ads and know what voice and language will best appeal to your target audience. And it’s easy to understand whether something works for the audience — you need to measure user engagement. For example, for social media posts, you can track the number of views, likes, and comments. This information will flag whether or not the message is attractive to your audience.
7. Act on Your Findings
After you have compiled your research, you need to analyze the data and turn it into actionable insights. Actionable insights are real changes that you want to introduce to your strategy to improve the current state of your product. You need to calculate the effort required to introduce those changes and be ready to defend them in conversation with stakeholders using ROI (return on investment) indicators.
8. Be Data-Informed, Not Data-Driven
The more data you have, the better your decisions will be, right? Wrong. In actuality, more data makes it harder to make a smart decision. Putting data at the heart of the design process is one of the common mistakes that many product teams make during competitive analysis. Data-driven design rarely provides good results. When an organization relies too much on data, it kills design intuition. Without intuition, you won’t ever devise innovations. Collect only the data that help you strategically inform your design decisions. Don’t forget to be open-minded and ready to experiment with various approaches.
9. Repeat and Revise
The market can shift at any time, and what worked yesterday might not work today. That’s why, when it comes to product/marketing strategies, you need to always remember that changes are inevitable. You should be ready to adjust your product and marketing strategies as you get more information on what works and what doesn’t work for your users. For the same reason, you should conduct competitive research on a regular basis. In fact, you should probably even make it a part of an iterative flow of your design process.
Three Frameworks for Competitive Analysis
A competitive analysis framework is a ready-to-use model that can help you streamline the analysis by giving you a structure to work with. You can use several frameworks for competitive analysis. Here are the three most common.
SWOT (Strengths, Weaknesses, Opportunities, and Threats) is a perfect tool for identifying a potential competitive advantage. Whenever you have a particular product design decision and want to know whether it works for your audience, you can quickly evaluate it using the SWOT framework.
A perceptual map is a visual representation of customers’ of your product relative to competing alternatives. For example, a simple perceptual map can use two scales: price and quality. Based on those properties, you create four quadrants (high price, high quality; high price, low quality; low price, high quality; low price, low quality) and position both your product and products from your competitors in those quadrants.
Growth Share Matrix
Growth share matrix was developed by the Boston Consulting Group in 1968 as a tool that helps companies decide how to prioritize their different businesses. It is a table, split into four quadrants; each of the quadrants contains its own unique symbol that represents a business activity that generates profit. This matrix provides a framework to evaluate your products. If an organization has a range of products, a growth share matrix can help the organization to decide which ones to invest in further and which to kill.
Good analysis helps you understand the competitive landscape you’re in. It provides strategic insights into product design and marketing decisions and ultimately helps a team build a superior product. You can make the most of competitive advantage when you supplement it with other research techniques like user interviews and focus groups.