Know your competitors

Just like you, your competitors are chasing customers and trying to take the biggest possible slice of market share. If you grasp a good idea of their strengths and weaknesses you may be able to seize the advantage.

In brief

• Direct and indirect competition
• Identifying your rivals
• What you need to know
• Using the information
• What to do next

Sometimes it's relatively easy to identify your rivals. If you run a town centre café and there are three others on the same street, all chasing the hard-earned cash of shoppers and office workers, then it's pretty clear who you're up against.

But it isn't always that straightforward. Let's say you're a specialist shop in the same town centre, selling outdoor equipment for hikers and climbers. There isn't anyone else in town selling into the same market, but that doesn't mean you don't have competitors. In a geographical sense, you don't have any direct rivals, but once you start to think about the internet and the shopping habits of people who travel regularly into other towns and cities, it soon becomes apparent that you have a lot of indirect competition.

So you should always be aware of your direct competitors (those businesses who are selling directly into your market) and your indirect competitors. This means thinking about your customers in terms of where they are buying now and where they may buy in future.

It's often a good idea to work outwards, starting with your local area or current market. You can identify competitors from some or all of the following sources:

• Business directories - online and offline
• Advertising - If you're a company selling into a specific geographical area, such as a town or city, the local press is a good place to start. If your reach is nationwide, scrutinise the trade and national press
• The internet - Google, Yahoo and other search engines provide a great way of identifying rivals. And if the products or services you sell lend themselves to e-commerce, you'll quickly find which firms are aggressively selling online.
• Exhibitions and trade fairs
• Customers - Who will often volunteer information if they have a good relationship with you or your sales staff.

Depending on your product/type of business, there are variations on these themes. For instance, if you run a company dealing in new technology, then the patent office, or the Intellectual Property Office as it is now known, should be your first port of call in order to establish whether any similar technologies have been registered.

Identifying competitors is just the first stage. Once you know who and what you're up against, the next step is to look at how they are positioned within the market and what they are offering to their own (and potentially your) customers.

Key factors:

• The products and services they offer
• The prices they charge (especially in comparison to you)
• How they market themselves - online and offline
• How they differentiate themselves from the competition (i.e. you)
• The market they are currently reaching. For instance, they may sell similar products to yours but (because of branding, price policy or marketing strategy) they may be reaching a different audience
• The quality of their goods or services (both in relation to you and other players in the market
• Their relationship with customers. Are they seeing market share growing or falling? What strategies do they employ in order to retain customers?
• Strength of the business. Are they making a profit? Losing money? Ticking over? Growing rapidly?
• Their plans for the future.

Some of this information will be publicly available. For instance, you can find out a lot about what a company offers, as well as its pricing strategy, from simply going to its website. Mutual customers are (again) a useful source of information, as is the trade press. In the case of registered companies, you can get historical financial results from Companies House.

Mystery shopping can prove very insightful, where relevant, as you get a first-hand view of your competitors as your customers see them

The point of bringing together all this information is to provide you with a clear picture of where you stand in relation to your competitors. For instance, are they doing anything better than you? Is their pricing more competitive? Are they not both winning and retaining customers more effectively? It's equally important (and gratifying) to know if you are operating more effectively.

This assessment is often done through a SWOT (Strengths and Weaknesses, Opportunities and Threats) analysis. You do this by assessing your competitors in terms of their strengths and weaknesses (and yours), the threat they pose to you (for, example, by increasing market share at your expense) and the opportunities that they (and you) are well positioned to embrace.