Do You Know Who Your Competitors Are?

Do you know who your competitors are
It’s a very simple question. Let’s say you own and operate a restaurant that serves pizza and pasta at a busy corner of high traffic downtown area. Who do you think you are competing with? Is it another restaurant that also serves Italian food within ½ a mile of your restaurant? How about the McDonald’s across the street? Now, take it one step further. How about the store that sells ready-to-eat meals that people can take home when they don’t have time to cook? A relatively simple sounding question can open up multiple possibilities when you think hard. Taking a simplistic view of the competition can hurt your business in the short-term and put you out of business in the long-term.

Consider the of case of Blockbuster – a highly successful video rental chain that you could find at every corner in the city in its heydays! And yet it doesn’t exist anymore, simply because it failed to anticipate the threat from new competitors such as Netflix and Redbox. Understanding your competition and keeping a watchful eye on them is the first task in ensuring long-term viability of your business. You can develop strategy to challenge that competition and succeed only after you have a good understanding of who it is you are fighting against.

So how do you find out who your competition is? You need to look at it from multiple angles. The key is to understand it from a customer viewpoint. If your existing customer had a choice to go somewhere else in lieu of your business where would they go? It’s all about finding the alternatives that exist out there for your customers. Described below are different views by which you need to look at your business to come up with the list of potential customers.

  • Product View – A simplistic view of a competitor is a business that sells the same products as you, may be at a different price point or with different quality. In addition, you also need to think about alternate products that customers might opt for. The example I gave earlier about restaurant competitors provides an excellent insight into this view of competitors.
  • Geographic View – Another way to look at competition is from location perspective. Would you consider another restaurant that is 30 miles away as your competition? Probably not. But then again, it depends. If they are serving mouth watering dishes that customers rave about maybe some of them will be willing to drive that extra distance. With the rise of internet and online shopping it has become even more difficult to think of your competition as only those companies that are within certain radius. With the click of a button customers can order products from some no-name business in another country. Even medical industry is not immune. Today you can find many top notch hospitals in developing country promoting medical tourism by which patient can get cosmetic surgery done at a fraction of what it costs here.
  • Business Model View – This is somewhat more difficult to monitor. In an established industry another competitor can come along and change the fundamental economics of the industry.  Here is an example. Customers were used to buying software licenses for a flat upfront fee running into thousands of dollars. That is until came up with software-as-a-service model by which you could pay monthly fee to use their software without having to incur upfront cost. Now software giants Oracle and SAP are scrambling to respond.
  • Unknowns – This is the most dangerous type of competition. You simply do not know when someone will come out of left field and sell alternative products or services and threaten your business. If you are a local contractor for home maintenance and all of a sudden Home Depot decides to provide these services along with selling tools and supplies you will be hard pressed to compete. It is bound to have significant impact on your business.

As you can see you have to take a holistic view when considering your competition. So, let me ask again. Do you really know who your competitors are?