The Relevance of Competitor Analysis Metrics and Scorecard

Competition exists in all industries. One of the ways to increase the profitability of one business organization is to take away a chunk of the competitor’s customer base. Truly, it is important to identify your competitors to be able to survive the nitty-gritty world of business. An acknowledgement of this is the fact that competitor analysis is always included in a business plan or feasibility study. The identification of relevant competitor analysis metrics will be useful in making one’s competitor study as accurate and as useful as it could possibly be.

Generally, the first step in conducting competitor analysis is the identification of competitors, both direct and indirect. Direct competitors are those businesses that have products or services that are identical or similar to the ones that your business provides. These companies can be considered to be one’s most intense competition because customers can choose to buy their products or patronize their services instead of yours. Indirect competitors, on the other hand, are those businesses with produ

products or patronize their services instead of yours. Indirect competitors, on the other hand, are those businesses with products and services that can be considered close substitutes. Generally, they target the same segment of the market as you do.

It might also be wise to identify one’s future competitors. This way, you will be able to anticipate how their existence will affect your profitability. Future competition may be companies that already exist but have not yet manifested any efforts to occupy your place in the market. Identifying all competitors can be an impossible task, as their numbers could range in hundreds or even thousands. When this is the case, one should exercise one’s judgment in identifying one’s most formidable competitors.

Once major competitors are already identified, it is time to create a competitor analysis grid that will indicate the strengths and weaknesses of each competitor. Analyzing and understanding how competitors succeed will give you an idea about how to efficiently and effectively structure your business. Possible sources of information about competitors are their websites, annual reports, government agencies like the Securities and Exchange Commission, the Federal Trade Commission and the Department of Commerce, security firms, and the Internet.

The competitor analysis grid will also require that you indicate opportunities and threats that could be the source of your company’s competitive advantage over the others. The opportunities and threats identified could be used to further the profitability of one’s business. In addition, it is also imperative that you analyze the strategies of your competition so that you can use them as a guide in deciding what product, pricing, promotion, and distribution strategies to use.

In analyzing the competition and studying the market, it is important that you study both numeric and non-numeric data relevant to your competitors’ operations. While it is important to diagnose the financial health of companies using such metrics as cash flow growth, return on assets, and net profit margin, it is equally important to consider non-financial metrics. The use of competitor analysis metrics and the Internet will definitely help any company get in touch with everything that its competitors have to offer. After all, it is inevitable for a company to learn a thing or two from their competitors as well.

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