Entrepreneurship Unit 2.2 Analyzing a business’s competitors and industry

Students will Assess their Market’s Competitors and Industry Students will be able to: Research competitors and identify their niche Assess competitors’ strengths and weaknesses Assess industry characteristics

The Purpose of Competitive Analysis Competitive Analysis explains the market positions of both a company’s direct and indirect competitors. Competitive analysis often uncovers new business opportunities by pinpointing where customer needs are not yet being met.

What is a Niche? Niche A small, specialized segment of the market based on customer’s needs. Some businesses will focus on the smaller segment instead of competing with everyone else for the bigger market. Example: In real estate, Planned Unit Developments (PUDs) target the 55+ age group, instead of competing with all the other builders in an area. They don’t sell homes to their niche—they sell “lifestyle.”

Competitive Overview The first step in creating competitive analysis is to research one’s top direct and indirect competitors. Direct competitors offer similar products. Indirect competitors offer close substitutes that meet the same basic need.

How to “Research” Competitors (Create a table to analyze) Identify your top direct competitors. Identify your top indirect competitors. State the locations of your top competitors and the number of years in business. Describe the primary markets or market segments your competitors serve. Describe the primary products and services your competitors sell and how much they sell, if known, in units or sales dollars.

The Value Proposition The second step in the competitive overview is to analyze your top direct and indirect competitors in greater detail to determine their strengths and weaknesses. This will help you determine the value proposition of each of your competitors.

How to Determine the “Value Proposition” Evaluate your competitors’ product or service selection, quality, and availability. Evaluate your competitors’ promotion strategies, including advertising, branding, packaging, and labeling strategies. Evaluate your competitors’ pricing policies and pricing structures. Explain your competitors’ customer service and after-sale service policies.

Example: Snake River Grill (Competitors’ Strengths and Weaknesses) Ken Stewart’s Great reputation for quality and service; personalized touch of owner; leverage brand name to additional catering services High prices; additional restaurants spread owner too thin to maintain personalized touch and superior service Moe’s Restaurant Something new and different; can maintain intimate appeal Small size; lack of brand awareness Lanning’s Old-world feel; superior, white-glove service; perceived as a very “Special Night Out” May not appeal to Generation X and Y; may appear too outdated River Front at the Sheraton Location inside hotel; can handle large events and catering Relies on hotel customers; convention market is heavily tied to local economy and visitors not controlled The Olive Garden Well-known; consistent food menu Not perceived as something special

Industry Trends You can find opportunity in an industry by looking at trends and patterns of change. Consider: Has the rate of sales growth slowed? Does the government heavily regulate the industry? How volatile is the industry? Is it becoming more difficult for new companies to enter the industry?

Industry Forces that Affect Your Business 1. Barriers to Entry Conditions or circumstances that make it difficult or costly for outside firms to enter a market to compete with the established firm or firms. Existing businesses may bar new companies from certain distribution channels.

Industry Forces that Affect Your Business (Cont’d.) 2. Threats from Substitute Products. Example: Suppose you are planning to open a restaurant serving low-carbohydrate meals. You will be competing with other restaurants in your area, with grocery stores, and with specialty food stores.

Industry Forces that Affect Your Business (Cont’d.) 3. Sources of Supply may affect costs, pricing, and sales. Consider: Access to affordable sources of inventory, raw materials, and goods; Where your suppliers located; What trade discounts they offer; Availability of alternative sources.

Industry Forces that Affect Your Business (Cont’d.) 4. Buyers’ Ability to Bargain. In industries where large discount buyers have bargaining power, a new business may have difficulty gaining a foothold. Small businesses usually compete by offering personalized service and customized products.

Industry Forces that Affect Your Business (Cont’d.) 5. Technology Technology allows companies to improve their business processes. Companies that use technology to operate effectively and efficiently are more likely to remain competitive.

Competitive Intelligence Visit competitors’ outlets. Buy your competitors’ products. Search the Internet and your competitors’ Websites.

Industry Characteristics Each industry has basic characteristics or demographics. For example: Number of companies Annual revenues Average size of the companies by number of employees

Terms to Define: Competitive Analysis Direct Competitors Indirect Competitors Industrial Markets Industry Trends Industry Characteristics

Let’s Review Identify ways to research competitors and identify their niche. How can you assess competitors’ strengths and weaknesses? What are 5 industry forces that may affect your business? List examples of industry characteristics

Created by: JJ Abernathy Snow Canyon High School Sources Allen, Kathleen R., & Meyer, Earl (2006). Entrepreneurship and small business management. New York: Glencoe. Green, Cynthia L. Entrepreneurship: ideas in action. Boston: Thompson/ South-Western. Created by: JJ Abernathy Snow Canyon High School 2006