Whether you’re a small business or a large corporation, whether you’re looking to invest in, lend to or advise a client, understanding the competition is always critical. Researching the market will help you assess your category, strategize, and make the right decisions for your company to gain an edge over your competition.
Moreover, Porters Five Forces (Porter's Five Forces Industry Analysis) details Industry Competitors which explains that a company’s success ultimately depends on its position in the market, which largely hinges on the level of competition. Competition is driven upward when there are large, established companies dominating an industry. Before breaking into an industry, newer, less established companies should consider whether they’ll be able to steal the limelight from existing competition. If their product or service is not distinguished enough to divert business away from competitors, their chances of thriving are low.
A competitive analysis (or competitive research or competitive intelligence) shows how companies within an industry compete. The analysis considers factors like price, quality, brand and proximity, among many others.
Competitive analysis involves much more than just checking out competitors’ websites or social media accounts. Performing in-depth competitive research will help you:
Competitive Analysis Example
Competitive Advantage
For example, within the Car & Automobile Manufacturing industry, Tesla has leveraged its competitive advantage of specializing in electric vehicles to increase its market share.
In addition to product factors like price and quality, companies must also consider shifting consumer preferences, or “the market,” for their products. Today’s consumers are more environmentally conscious, so Tesla again has an advantage as a “green” car option.
Trends
Continuing with our example of a competitive analysis within the auto manufacturing industry, companies bet on emerging trends and thus compete on the basis of market assumptions. Tesla’s early investment in electric vehicle production is a component of their competitive advantage in the industry. This is often referred to as a first-mover advantage, when a company bets on a nascent trend and emerges as a frontrunner.
Forces
Both market forces and product factors are important components of a competitive analysis. Ultimately, correctly adjusting product factors in anticipation of market forces is the business objective and one in which a competitive analysis is useful.
Industry Impacts
On a broader level, industry characteristics influence an industry’s basis of competition. Market share concentration has the biggest effect on the level of competition within an industry.
Fragmented Industries vs. Concentrated Industries
Fragmented industries are typically competitive on a localized level. For example, car dealerships often operate on a regional basis and thereby compete with other regional car dealerships.
Conversely, concentrated industries, in which a handful of companies generate more than half of an industry’s revenue, are generally more competitive. For example, the highly-concentrated Wireless Telecommunications Carriers industry is notoriously competitive because of the low differentiation of its services. In turn, companies in the industry compete on price, coverage and reliability.
Now that we understand the broad frameworks and analysis used to assess external forces and competition, it’s time to dig into the details of industry financial information.
Overall, calculating market share gives you insight into an industry’s concentration, competitive landscape and room for business opportunities. The level of concentration in an industry indicates the dominance of its top players. Knowing the concentration level provides greater insight.
A company’s market share is its industry-specific revenue measured as a percentage of the industry’s total revenue. Thus, to calculate a company’s market share, use the following formula:
(Industry-specific Company Revenue ÷ Total Industry Revenue) * 100 = Company’s Industry Market Share
The equation specifies industry-specific company revenue because some companies, especially larger ones, can operate in several industries. Taking their total consolidated revenue figure for only one of the many industries they operate in would yield an inaccurate, overblown market share.
To find an industry’s total revenue, you can use various online resources or reference the suite of industry reports produced and published by IBISWorld.
Below is an sample view of market share information available on an industry report, Major Companies tab. PNG image and CVS reports are downloaded by clicking on the downward arrow located to the right of the report's title.