Why Competitor Analysis Is So Important For Business Growth

January 15, 2020

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It doesn’t matter what your business is or what it does, you will inevitably be competing with a number of other businesses. Before your business begins trading, you should already have a pretty good idea of who your competitors are going to be and what sort of challenge they will present to your business.

Once you begin trading and start competing with them in earnest, you should periodically conduct competitor analysis so that you can understand what they are thinking and what they are likely to do next.

Here are some of the key reasons why competitor analysis is so important for any business looking to grow in the long term.

Identify Your Main Competition

Most businesses will be competing against numerous other businesses for market share. However, at any given point in your business’s lifetime, there is likely to be just one or two businesses that represent your most serious competition. Identifying which businesses are the greatest threat to your own is essential in planning a corporate strategy.

Conversely, competitor analysis will enable you to identify the businesses that are significantly weaker than yours. If you are looking to grow your market share, then targeting these customers will provide the most cost-effective returns.

Identify Market Trends

Staying abreast of the latest market trends is essential for any business. However, it is notoriously difficult to predict new trends, and reacting to them is often not enough to take full advantage of them. If you really want to profit off a new trend in your market, you need to get in on the ground floor.

Competitor analysis will provide insights into what your competition is thinking, and will enable you to anticipate which direction your industry is headed in. If you can see your competitors are making moves that suggest they are preparing to take a particular course of action, you will be able to perform your own analysis and decide whether they are on to something, or whether they are about to make a big mistake.

Gain Insight Into Your Competitors

Many people who work in the same industry as you will have completely different philosophies and will take a different approach to their work than you do. You might assume that it would be easy for you to understand your competitors’ decisions, even if you don’t agree with them. However, just ask any experienced businessperson and they will be able to tell you that sometimes the actions of your competitors seem to make absolutely no sense at all.

When you don’t understand why your competitors are doing what they do, it can be hard for you to formulate an effective counterstrategy. One of the best ways of gaining insights into what your competition is thinking and why is through earnings transcripts.

Every so often, public companies will hold conference calls with investors and Wall Street analysts to discuss their quarterly earnings. When they do this, there is an opportunity for questions, comments, and discussion. The transcripts of these conversations can provide useful insight into how your competitors are thinking.

The better you understand your competition, the easier they will be to fend off. Competitor analysis provides you with invaluable insights into your industry as well as your consumers and gives you an advantage over your main competitors.