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Competitor analysis models help a company determine which businesses are most threatening. For example, a company may want to know which businesses dominate the widget market. Using models like independent reviews, strength-weaknesses-opportunities-threats (SWOT), or the five forces models may help here. Each of these methods provides specific information by which the company gleans data on competitors. They can provide similar or different data depending on the type and number of competitors in the market.
Independent competitor analysis comes from either the company itself or an independent party. This analysis tends to result in the least amount of useful information if the company is ill equipped to gather data. The owner may assign an employee onto this task or simply hire an outside firm. Using an outside firm should provide better results in competitor analysis models as the third party probably has better knowledge of a market. The expense of hiring the firm, however, can be among the biggest drawbacks, along with publicizing the fact of competitor analysis.
SWOT analysis is a bit more in-depth than independent competitor analysis models. The specific section here that deals with competitor analysis is threats, defined by T in this model. Threats represent any internal or external factors that a company faces that can lower market share. Competitors are among the biggest threats here, both in their number and strength in the business environment. The company will most likely gather this data on its own or through independent individuals.
Weaknesses can also be an important part of these analysis models. If a company is weak in a certain area, a strong competitor may exploit this weakness. Companies need to look at both the threats and weaknesses in this model when conducting competitor analysis.
The five forces model has two different aspects that can help a company define threats from competitors. The first aspect in these competitor analysis models is the threat of substitutes. Competitors may focus on creating products that work well in place of another product. Substitutes tend to weaken a company’s price structure, which leads to lower revenues and profits. Buyers may also find substitute goods valuable enough to continue purchasing them in the future.
The second aspect of the five forces model is the threat of new entrants. Competitor analysis models that focus on new threats work best for established companies that control a market. New competitors can make it hard for an established company to maintain market share and stay relevant with consumers.