What is a competitive analysis & how to do one for your startup | DigitalOcean

Your startup isn’t just trying to satisfy customer needs—it’s also vying against competitors attempting to do the same thing. The challenge is to launch a unique product or service that’s distinct and relevant amidst the ever-emerging competition.

That’s easier said than done.

Fortunately, a competitive analysis (done correctly) can help you carve out a unique, defensible niche in your target markets. Competitive analysis provides you with the insights to anticipate market movements, preempt competitor strategies, and innovate in ways that keep you ahead of the pack.

Below, we take you through the ins and outs of competitive analysis and step-by-step instructions on how to conduct your own. You’ll walk away with actionable advice to fuel your growth strategy based on reliable, real-life competitor insights.

What is a competitive analysis?

Competitive analysis involves evaluating your competitors to understand their company’s strengths and weaknesses compared to yours. It’s an important tool that helps your business with the following:

• Understanding the target market and its needs
• Identifying potential threats from competitors
• Finding product and service gaps
• Discovering opportunities where you can gain a competitive advantage
• Staying ahead of trends
• Planning your own product development

This analysis goes beyond a cursory glance to provide a deep dive into your competitors and their operations, products, services, marketing strategies, and customer experience.

Not every competitive analysis will look the same, but there are a few must-have components you’ll want to include:

• Competitor identification: Find your direct and indirect competitors.
• Product/service analysis: Understand competitor offerings, features, and quality.
• Marketing strategy: Evaluate how competitors position themselves and attract their target audience.
• Sales tactics: Learn about pricing, sales channels, and distribution strategies.
• Customer experience: Analyze how competitors interact with and retain their customers.
• Strengths and weaknesses: Identify areas where competitors excel or fall short.

Insights into these areas will give you actionable advice to direct your business and its development. You’ll find successes you want to replicate and mistakes you want to avoid, all while finding your own unique niche in the market.

Your competitive analysis will shape and refine your entire business strategy. It informs everything from product development to marketing tactics and sales strategies. “If you don’t have a competitive advantage, don’t compete,” says Jack Welch, former CEO of General Electric.

How to conduct a competitive analysis

Performing a competitive analysis is crucial for understanding your position in the market. This section will walk through the key steps of analyzing your competitors, from identifying direct and indirect competitors to evaluating their strengths and weaknesses.

1. Identify your competitors

Begin by identifying your direct and indirect competitors. Direct competitors offer similar products or services, while indirect competitors provide alternatives that could divert your target audience.

Understanding who you’re up against is the first step in crafting a strategy that differentiates your startup. Use market research, customer feedback, and online platforms to create a list of competitors vying for the same customer base.

2. Analyze product offerings

Dive into the products or services that your competitors offer. Understand their features, benefits, and any unique selling propositions (USPs) they might provide.

This involves exploring their product range, quality, features, and any innovations they bring to the market. Knowing their offerings inside and out empowers you to identify gaps your startup can exploit or areas where you can outshine the competition and build a competitive product roadmap.

3. Evaluate marketing strategies

Learn how your competitors position themselves and attract their target audience. Analyze their marketing channels, messaging, branding, and promotional strategies.

This will provide insights into what resonates with your target audience and reveal opportunities where you can differentiate your startup marketing plan to capture industry attention.

4. Look at pricing models

Investigate how your competitors price their products or services. Understand their pricing strategies, discount structures, and any loyalty programs they might have.

This will help you position your pricing model in a way that communicates value to your target customers while ensuring you remain competitive and profitable in the market.

5. Investigate strengths and weaknesses

Conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) for direct competitors. Identify areas where they succeed and where they fall short.

A SWOT analysis highlights opportunities where you can gain an advantage and provide insights into potential threats that could impact your startup.

6. Understand customer experiences

Explore how competitors interact with their customers across various touchpoints. Analyze their customer service, communication channels, and feedback mechanisms. Understanding their customer experiences will help you identify areas where you can provide superior customer interactions and build loyalty.

For example, if your competitors don’t offer 24/7 customer support, you know how to differentiate yourself.

7. Explore sales tactics

Look at the sales strategies and channels your competitors use. Understand their sales cycle, distribution channels, and tactics.

Learning these nuances will provide insights into how they convert prospects into customers and help you create strategies to counteract or outperform their sales tactics.

8. Analyze online presence and SEO strategies

Evaluate your competitors’ digital footprint, including their website, social media strategy, content marketing strategy, and SEO presence. Understand how they use online platforms to attract, engage, and convert their audience.

These insights will help you optimize your digital presence to capture market share and stay ahead in the online space.

9. Evaluate market position and share

Understand where your competitors stand in the market in terms of size, reach, and influence. Analyze their market position and share to provide a clear picture of who the market leaders are and where your startup stands in comparison.

This data can help you create strategies to build your market position and capture a larger market share.

Fuel your growth strategy with competitor insights

Remember, the insights from your competitive market analysis aren’t the end goal. They’re simply a means to fuel your own future growth strategy.

“If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful,” says Michael Porter, Harvard Business School.

Once you’ve conducted a thorough competitive analysis, the next step is to weave those findings into your startup’s strategy.

• Innovate where they stagnate: Identify and capitalize on gaps in competitors’ offerings to distinguish your startup and meet unfulfilled customer needs.
• Craft distinctive messaging: Develop unique and effective messaging that underscores your USPs and addresses customer needs differently or more effectively than competitors.
• Optimize pricing strategy: Analyze competitor pricing to strategically position your own to reflect market expectations and your unique value.
• Adopt and adapt successful strategies: Identify strategies that work for competitors and tailor them to fit your startup’s unique context and objectives.
• Anticipate market movements: Use insights from competitor strategies to foresee and prepare for potential market shifts and industry trends that might necessitate a business pivot.
• Enhance customer experiences: Identify and improve upon weaknesses in competitors’ customer experiences to provide superior interactions and build loyalty.
• Identify and enter new markets: Use competitor analysis to spot underserved markets or segments, providing new opportunities for expansion and growth.

Competitive analysis isn’t a one-and-done task—it’s an ongoing process. Continuous monitoring involves keeping a finger on the pulse of competitor movements, market trends, and customer preferences.

“You’ve got to keep reinventing. You’ll have new competitors. You’ll have new customers all around you.” — Ginni Rometty, former IBM CEO

Use tools and platforms to track competitor actions, such as new product launches, marketing campaigns, or shifts in pricing. Regularly updating and reviewing your competitive analysis keeps your strategies relevant, allowing you to stay ahead of the curve by preemptively counteracting competitor moves.

Seize the competitive advantage with DigitalOcean

Your startup doesn’t operate in a vacuum. Navigating the competitive landscape requires more than just innovative products and services—it demands a strategic approach that leverages competitor insights.

Platforms like DigitalOcean give you the competitive advantage you need to stay one step ahead of the market.

We provide your startup with the technological backbone to implement and adapt strategies efficiently. Our robust cloud solutions let you seamlessly turn your competitive analysis insights into actionable strategies.

Let competitive insights be the fuel that drives strategic growth and allow technology to be the vehicle that provides a smooth, streamlined journey toward success.

Get started with DigitalOcean to find the best mix of cloud solutions to meet the unique needs of your business—today, tomorrow, and forever.