Even if you’re convinced that your product or service is unique, it’s highly likely that your potential customers can already find it in one form or another.
Your job is to assess thoroughly and objectively who your competition is, what they offer and what factors make your product/service superior to theirs (i.e., your competitive advantage).
Then, you must convince potential customers why they should come to you instead.
This analysis will also figure prominently in your business plan. A thorough understanding of these factors is also essential to convince lenders that you have a valid business idea and realistic plans for business success.
How does your planned new business measure up to your competitors? Find out by taking this quick quiz. Note that the analysis of your competition affects many elements of a business plan and the questions below represent only a sample of the issues that must be considered.
- Can you concisely describe to someone unfamiliar with your business what your product/service is and what makes it unique?
- Can you justify why your pricing strategy is competitive, yet profitable?
- Have you identified potential disadvantages of your product/service and how they may affect your profitability?
- Can your competitive advantage be easily conveyed in your marketing materials?
- Have you analyzed the strengths and weaknesses of your competitors (e.g., location, expertise, reputation, services and/or personnel)?
If You Answered Mostly Yes
You’ve obviously done your homework, and are on your way to developing a winning business plan.
But just because this phase of research is complete doesn’t mean your job is done. The business environment changes fast, and your competitors aren’t sitting still waiting for you. They are responding to changes in the environment and fine-tuning their tactics just as you are formulating yours. As you develop your business plan, periodically review the data and projections to make sure they are still accurate and up-to-date. Be alert to trends and shifts in your industry, target market and service areas. Perhaps most important, have your business plan reviewed by people you can trust to provide an objective, constructive critique. Join them in brainstorming possible issues you may have overlooked.
If You Answered Mostly No
Obviously, you’re just getting started developing your business plan. But don’t worry if there seems to be a lot of work ahead. Every successful business owner goes through this effort. It takes a lot of time, research, rewriting and rewriting. But the results are worth it.
A good way to begin sizing up your target market is to start a file on each of your competitors. Collect everything you can about them — their advertising and promotional materials, pricing strategy techniques, etc., and review these files periodically. Determine when and how often they advertise, sponsor promotions and offer sales. Study the copy used in the advertising and promotional materials, and their sales strategy. Using this technique, you’ll understand your competitors and how they operate their businesses. And, you’ll have a better idea of how to operate yours.
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