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Competitive analysis models like SWOT and five forces help companies identify their biggest threats, including competitors. Independent analysis can be less useful, while hiring outside companies can be expensive. Weaknesses and substitutes are also important factors to consider. New entrants can pose a threat to established companies.
Competitive analysis models help a company determine which companies are the most threatening. For example, a company might want to know which companies dominate the widget market. Using models such as independent reviews, strengths-weaknesses-opportunity-threats (SWOT), or five forces models can help. Each of these methods provides specific insights into how the company collects competitor data. They can provide similar or different data depending on the type and number of competitors in the market.
Independent competitive analysis comes from the company itself or from an independent party. This analysis tends to produce the least amount of useful information if the company is unable to gather data. The owner can assign an employee to this task or simply hire an outside company. Using an outside company should perform better in competitor analysis models as the third party likely has better knowledge of a market. The company’s hiring fees, however, can be among the biggest drawbacks, as well as publicizing the fact of the competitor analysis.
SWOT analysis is a little 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 factor that a company faces that can reduce market share. Competitors are among the biggest threats here, both in number and strength in the corporate environment. The company will most likely collect this data itself or through independent parties.
Weaknesses can also be a big part of these analysis templates. If a company is weak in a certain area, a strong competitor can exploit that weakness. Companies need to look at both the threats and weaknesses of this model when conducting competitive analysis.
The five forces model has two different aspects that can help a company define competitor threats. The first aspect of these competitive analysis models is the threat of substitutes. Competitors can focus on creating products that work well instead of another product. Substitutes tend to weaken a company’s pricing structure, which leads to lower revenues and profits. Buyers can also find substitute goods valuable enough to continue purchasing 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 entrants can make it difficult for an established company to maintain market share and stay relevant with consumers.
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