A Practical Guide To Understanding Your Competitors
Throughout my career, I've participated in numerous meetings and one memorable moment was securing a contract, despite our solution being 40% more expensive than our competitor. This victory stemmed from our deep understanding of our competitors, which went beyond simple pricing and functionality comparisons.
What is a Competitor?
In simple terms, a competitor is any company within your industry offering a similar product or service. Truly understanding your competitors involves more than recognising their prices or features; it requires a comprehensive strategy analysis and an understanding of their weaknesses.
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Frameworks for Competitive Analysis
Using Porter’s Five Forces:
Bargaining Power of Buyers: How easily can buyers push prices down? Consider their number, size, and power.
Bargaining Power of Suppliers: What about your suppliers? How unique are their products, and what does it cost to switch?
Competitive Rivalry: What’s the competition level? More competition often means lower prices.
Threat of New Entrants: Can new firms easily enter your market? Look at barriers like technology and capital.
Threat of Substitute Products or Services: Can customers easily find another product? Assess the availability and quality of alternatives.
Applying a SWOT Analysis:
Strengths: What are your strong points? Maybe it’s your tech, your brand, or your expertise.
Weaknesses: Where do you lag? Maybe it's the speed of service or the diversity of your products.
Opportunities: What external factors could you leverage? This could include market trends or new tech.
Threats: What challenges might you face from the outside? Consider things like new regulations or changing consumer preferences.
A Simple Everyday Framework for Identifying Competitors
Direct Competitors: These are companies within your industry with similar offerings. Tools like LinkedIn and consumer review sites can provide valuable insights.
Indirect Competitors: These companies are in different industries but meet similar customer needs.
Replacement Competitors: Broadly, these are all alternative solutions customers might consider. Think of new tech or different service models.
Engaging with Customers
75% of the work we need to do to understand the options available to our customers can be done before meeting with them.
We can make realistic assumptions about replacement competitors and create a cheat sheet of where those alternatives may be weaker or stronger than our proposed solutions.
This will help control the conversation's direction and provide well defined ideas that customers can either elaborate on or dispute as unsuitable for their needs. Either way, we can move the conversation forward and show credibility and empathy by putting ourselves in the customer's shoes.
Initial Discovery: Begin each interaction by gaining a deep understanding of the potential client's challenges. Ask open-ended questions to explore what solutions they've already considered and why those might not meet their needs.
Aligning Your Offering: Demonstrate clearly how your product or service fits uniquely into their situation. Focus on highlighting key benefits like cost efficiency, ease of use, and the exceptional support you provide. Let them see the value beyond just the specs.
Handling Objections: Prepare to respond to any concerns with confidence. Discuss the long-term advantages of your solution and its reliability over time. Make it clear that you’re not just offering a product but a partnership and support that endure.
Closing: Steer the conversation towards a consensus. Help them see why your solution is the optimal choice. Emphasize the seamless integration process, robust support systems, and the substantial ROI they can expect. Leave no doubt that moving forward with your solution is the right step.
Understanding your competitors is crucial, but equally important is knowing how your customers address their challenges. By applying these frameworks and engaging thoughtfully with potential clients, you can position your solutions not just as another option, but as the best choice.
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FAQ’s
How do I identify which competitive framework is best for my business?
Choosing the right framework depends on your specific industry characteristics and business objectives. Porter’s Five Forces is ideal for gaining a broad understanding of market dynamics and competitive pressures. It's particularly useful if you’re in a highly competitive or rapidly evolving industry.
The SWOT analysis is great for a more focused approach on internal capabilities and external opportunities or threats. Start by outlining your primary business challenges and goals, and select the framework that best aligns with these areas.
Can you provide an example of how to use the direct, indirect, and replacement competitor framework practically?
Absolutely. Let’s say you’re in the cloud storage business. Your direct competitors might include other cloud storage providers like Dropbox or Google Drive.
Indirect competitors could be external hard drives or USB drives — alternatives that provide similar functionality. Replacement competitors might be emerging technologies like blockchain storage solutions. Analyze each by listing their strengths and weaknesses in comparison to your offerings, focusing on features, customer service, price, and technology. Use this analysis to refine your marketing and sales strategies.
What are some effective ways to engage potential customers during the initial discovery phase?
Effective engagement starts with active listening. Pay close attention to the customer’s current challenges and the solutions they've considered.
Ask probing questions that encourage them to reveal deeper issues or needs they might not have initially expressed. For instance, ask, "What has been your biggest hurdle with current solutions?" or "What features do you wish were improved in the solutions you’ve tried?" This information will help you tailor your approach and demonstrate how your solution better meets their needs.
How can I effectively handle objections about the cost of my solution?
Handling price objections involves reinforcing the value your solution offers. Break down the cost benefits over time, emphasizing total cost of ownership rather than just upfront costs.
Illustrate how your product can save money in the long run through efficiency gains, lower maintenance costs, or better scalability. Provide case studies or testimonials from similar clients to showcase how the investment has paid off.
What strategies can I use to close a sale after addressing all customer concerns?
Closing a sale effectively often hinges on creating a sense of urgency and demonstrating undeniable value. Summarize the key points of how your solution addresses their specific needs and concerns.
Offer a limited-time discount or an exclusive feature if they sign up within a certain timeframe. Reinforce the support and after-sales service they will receive, ensuring them that they are making a risk-free decision. Finally, ask for the sale directly, for example, "Can we proceed with setting this up for you so you start seeing the benefits as soon as possible?"
