How To Research Your Small Business Competition

by Tom Egelhoff

Author Tom Egelhoff

No matter what type of business you're in, sooner or later, there's going to be competition.

Most will not be a problem to you but some can be formidable.

Once again, living and working is a small town gives you a certain advantage over your competition.

If the competitor is a new business, it's hard for them to do the preliminary studies for starting the business without someone hearing about it and carrying the message to you.

If it's an established competitor, they too will have trouble rolling out a new campaign without your knowing it's coming.

Places To Find Competitive Information

Visit your local planning office from time to time to find out whose building new facilities or remodeling their existing business.

Building plans are public record. The city has a list of new business licenses issued. Get to know the people in city and county government who can help you.

Get involved in the community. Your local chamber of commerce is a great source of new business information. Networking is not just some "buzzword" of the 90's, it works...use it.

The small town grapevine can be a blessing and a curse at the same time.

Your competitors often will have the same grapevine from your business to theirs.

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Identify The Competition

You probably think you know your competitors. In most cases you only know the obvious ones. First, let's look at the two ways to identify competitors.

Price contenders - These are the people who go after the consumer dollar. Generally low price is their key message. They're always going to get a certain segment of your customer base...the price shopper.

Strategy contenders - This is a much stronger group. They make a case for doing business with them by the advertising and marketing strategies they use.

These are much stronger competitors than the price contenders.

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Different Kinds Of Competitors

Now, lets look at the categories of competitors and find the ones you've been missing

Direct competitors - McDonalds® and Burger King® are probably the best examples of direct competitors. Are they price contenders or strategy contenders.

Even though they both offer low price sandwiches from time to time I would still group them with the strategy contenders.

Most of their advertising is getting the customer into the store.

The next two categories are often missed by many businesses.

Secondary competitors - Here you might place upscale hamburger retailers like Fudruckers®. Most people would place Wendy's in the direct competitor category above but I put them here because of their competitive strategy.

No kids in their commercials, no toys, adult menu. They distance themselves from the two heavyweights but carry the same products.

Indirect competitors - This is the toughest category of all. For example, in some businesses, it's the time change. Business slows down as people move outside to enjoy the longer days.

In San Diego, CA, my former home town, the beach was a very powerful competitor to all kinds of businesses.

Other indirect competitors of McDonalds® would be Pizza Hut®, Dairy Queen®, Taco Bell® and other local non-hamburger establishments.

For more on this subject see: "Who's Your Real Competition?"

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What To Do Next

In a large city, the next step is obvious, start testing various ideas with your target market. In my opinion this method is a disaster waiting to happen in a small town.

Why? Because of the position of the business that is already established. See: "How To Develop Your Position Strategy."

In a small town you have a much smaller customer base than a large city.

In New York, for example, you have an average of 27,000 people per square mile. Test away. By contrast, here in Montana, we have 5 people per square mile in the whole state.

With a smaller customer base you can't afford many mistakes. You have developed a perception of your business in the minds of your customers.

They have confidence in what and who you are. Changing that perception by going in a new direction can be very dangerous. They may not want to go with you.

Even more critical is not making mistakes your competitors can capitalize on. If you try a promotion that fails miserably you have just paid the testing costs for your competitor.

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Take A New Direction

First of all, resign yourself to the fact that your competitors are going to get wind of what ever plans you have.

They're going to adjust their future plans in proportion to how strong your plan is and what kind of threat you are to their business.

Here are my suggestions for keeping them in the dark.

Concentrate your testing internally with employees and customers. Ask your best customers to fill out questionnaires regarding their perceptions of your competition.

You don't need to mention your competitors names in the questionnaire but generically describe their services and procedures and get your customers reaction.

Have them fill out the questionnaire in house. This will prevent your competition from getting a copy.

In addition, they may have questions that will alert you to problems they have had but didn't feel comfortable bringing to your attention.

Also, as part of the questionnaire, try to get as much demographic information as you can. What newspapers do they read? Radio stations? TV? Magazines?

The people filling out this information are your target market. They are also the target market of your competitor.

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Evaluation Of Competitor Research

Evaluate the questionnaires and see if the competition is advertising where the target market says they are looking.

If they aren't advertising there... why not? Have you missed something or are they just spending their ad dollars in the wrong place?

Next, try UN-ADVERTISED testing within your business.

If you must test something, do it in-house so you are there to control any unforeseen negatives that might arise.

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Use Outside Sources Carefully

Most businesses rely on outside sources. Suppliers, distributors, salespeople, accountants, attorneys and customers.

These people are a great source of information on your competitors. Let them talk about what they are doing. Sometimes they will let information slip about a competitors' plans or purchases.

Through suppliers you can also find cost pricing for competitive products.

For example, you carry the ABC line of products, your competitor carries the XYZ line. Even if you have no intention of carrying XYZ you might call and ask for a catalog and price list.

This will give you first hand knowledge of what your competitor is paying for their product, quantity price breaks, shipping costs and payment options that are available.

The catalog will also contain key selling points of XYZ products that you must counter in your advertising sales message.

Be careful in your interrogation of sources. They may let your competitor know of your interest in their activities.

Out of fear, the competitor may respond with increased advertising and marketing that you are not prepared to combat.

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Keep Records And Evaluate Trends

Most business owners are paranoid about their own advertising. Did it work? How much business was gained? Was it worth the expense? Don't your competitors ads deserve the same scrutiny?

If you don't have a file of all your competitors ads, start one today. This will give you a rough idea of their advertising budget.

What products are they advertising? What is their real message? How often are they advertising? Where are they advertising?

Cut out all print ads, record all radio and TV ads and evaluate their effect on your business. Did the ads draw business away from you? Have no effect?

Are they messages that you need to defend against?

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The Final Word On Competitive Research

As you can see there are many ways to find information about your competition and where they are going. Don't drive yourself crazy worrying about your competitor.

They are always going to be there in some form or another. The important thing is to be aware of what they are doing.

Don't change your business vision and direction based on your competition's direction.

Remember, if they are smart they are going to try to position themselves away from you, not closer to you.

Don't follow them unless their direction coincides with yours. Generally it won't.

Go your own way and do your own thing. Do what you love and the money will follow.

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