Lesson 16: Analyzing the Competition

Objectives Determine who the competition is and how they are affecting your business Determine who the competition is and how they are affecting your business Give examples of the two types of competition Give examples of the two types of competition Explain the advantages and disadvantages of competitors sharing the same trade area Explain the advantages and disadvantages of competitors sharing the same trade area Describe the impact competition has on pricing Describe the impact competition has on pricing Explain factors that can contribute to a store gaining a competitive advantage Explain factors that can contribute to a store gaining a competitive advantage Calculate market share Calculate market share Evaluate the competition Evaluate the competition

1.Who is the Competition? A business that sells the same or comparable merchandise within a given trade area. A business that sells the same or comparable merchandise within a given trade area. Use online tools to help you identify competition around your location and analyze the trade area Use online tools to help you identify competition around your location and analyze the trade area

2.Direct and Indirect Competition Direct – a business that offers the same products as another and so competes for the same customers Direct – a business that offers the same products as another and so competes for the same customers –Examples – Indirect – a business that offers products that are not the same, but that are similar enough to satisfy the same customer need Indirect – a business that offers products that are not the same, but that are similar enough to satisfy the same customer need –BBQ place and a pizza place (foods are different but satisfy the same need: hunger)

3.Analyzing Strengths and Weaknesses Visit other stores to identify their prices, products, appearance of the store, customer service, etc. Visit other stores to identify their prices, products, appearance of the store, customer service, etc. Compare OBJECTIVELY your business and the competitor’s business Compare OBJECTIVELY your business and the competitor’s business Answer the question: What do they do better than us? Answer the question: What do they do better than us? –This identifies your strengths and weaknesses

4. How Competition Affects Your Business Customers do comparison shopping, so competition can attract more customers to your store Customers do comparison shopping, so competition can attract more customers to your store Consistently evaluate your market share to analyze how you’re doing Consistently evaluate your market share to analyze how you’re doing –The larger the market share, the better the business is doing

5.Competition and Location Too little competition makes it more difficult to attract customers Too little competition makes it more difficult to attract customers Too much competition in a trade area makes it difficult for the existing customer base to keep all the stores in business Too much competition in a trade area makes it difficult for the existing customer base to keep all the stores in business

6.Pricing and Competition Price competition – happens when multiple stores carry the exact product at different prices. Price competition – happens when multiple stores carry the exact product at different prices. –Assumes that all other factors being equal, customers will buy an item where the price is the lowest AKA Pricing to meet the competition AKA Pricing to meet the competition –The reason why goods are prices relatively the same in stores

Pricing below the competitors is done to increase sales of an item or to attract new customers to the store Pricing below the competitors is done to increase sales of an item or to attract new customers to the store Pricing can be done above the competitors as a pricing strategy, but customers must see some added value from your store for it to be successful Pricing can be done above the competitors as a pricing strategy, but customers must see some added value from your store for it to be successful –Ie: convenience

NON-PRICE COMPETITION - Competing on factors other than the price of the merchandise you sell Quality of merchandise NON-PRICE COMPETITION - Competing on factors other than the price of the merchandise you sell Quality of merchandise –Customer service –Size of merchandise selection –Other special services valued by customers

7.Competitive Advantage The advantage a business can offer over a competitor’s business The advantage a business can offer over a competitor’s business Same as the factors above

8.Developing a Competitive Strategy Step 1: Get to know the competition Step 1: Get to know the competition Step 2: Include this in written format in your business plan Step 2: Include this in written format in your business plan Step 3: Update your information about the competitors often, as it changes often Step 3: Update your information about the competitors often, as it changes often Helps to build customer loyalty and the business to stand out Helps to build customer loyalty and the business to stand out

9.Key Math Concepts Market Share Percentage = Sales of a Specific Business Total ÷ Sales in the Trade Area