5.4 Competitive Analysis 🎯
This section includes an Activity 🎯
Most products have competitors. As a product manager, you have a responsibility to understand the competitive landscape. In analyzing other companies and their products, you need to consider many factors, including brand and market awareness, features, customer preferences, and pricing.
Markets move fast, and you'll need to make decisions quickly. This means you also need ways to quickly analyze your competition. The better you get at this, the better you'll be at making the right decisions when the time comes.
By the end of this checkpoint, you should be able to do the following:
- Conduct a competitive analysis using two different techniques
- Explain how competitive analyses are used to make better decisions
Why do competitive analysis?
If you don't know what your competitors are up to, you're putting your product—and your job—at risk. It's an important part of your job to know the market and keep track of any developments with your competitors' products. This is particularly important when considering whether to create a new product or update an existing one. You may ask the following questions:
- How do competitors' products work?
- What is working well for your competitors' users or for their business? What isn't?
- What customer problems do competitors solve?
- What should you do differently than your competitors?
- Can you compete effectively, or will your resources be better spent somewhere else?
Finally, you can use competitive analysis techniques to understand your own product better. How is your product vulnerable? Why do users prefer competitors' products over yours? What are you doing better than they are?
There are several techniques that can be used to conduct a competitive analysis, and each has its own advantages and disadvantages. Next, you will learn about three of these techniques: SWOT analyses, feature breakdowns, and price/value analyses.
SWOT
A SWOT analysis is an in-depth look at a product and its relationship to users and the market. The name SWOT stands for strengths, weaknesses, opportunities, and threats. For each of these four categories, you perform a thorough analysis and come up with a list of the top items. When the analysis is complete, the results can be visualized in a table.
Here's what a SWOT analysis for Facebook may look like:
| Advantages | Disadvantages | |
|---|---|---|
| Internal | Strengths - Billions of users - High revenue - Strong engineering team - Instant brand recognition | Weaknesses - Product is mature; the next evolution is unclear - Not very diversified as nearly all revenue is from ads - Not a unique offering |
| External | Opportunities - Can acquire other companies or technology as needed - Room to expand on Oculus/VR - Possible expansion into other product and feature areas | Threats - Users are concerned about privacy; low public perception - Government scrutiny into cryptocurrency, privacy, monopoly - Imitation products |
Now that you have a picture of the end result in mind, take a moment to break down each SWOT category.
Strengths
Strengths are the internal advantages that make a product better than others in the market. To find your product's strengths, ask yourself these questions:
- What makes your product unique?
- What does your product do better than others?
- What do your users see as your best qualities?
- What's unique about your company? Your people? Your technology?
- What is your value proposition? How well does your product live up to it?
Weaknesses
Your weaknesses are any unpleasant truths about your product. These are internal factors, not external threats like competition or government regulation. Be honest as you evaluate them:
- What do we know needs improvement?
- What do customers see as our disadvantages?
- How do competitors attack us in the market?
- What causes us to lose sales or renewals?
Opportunities
Opportunities are the external paths ahead that could be advantageous. Addressing known weaknesses or leveraging your strengths could lead to opportunities. Ask the following questions:
- What opportunities have we heard about?
- What interesting trends are taking place in our market?
- What new technologies or markets can we take advantage of?
- What social, economic, or lifestyle changes can our product tap into?
Threats
A threat is an external factor that could negatively impact your product. Here are some important questions to ask to identify threats to your product:
- What do our competitors do better than we do? What are their future plans?
- Are new technological, economic, legal, or societal changes going to negatively impact us?
- Could any of our weaknesses be exploited by our competitors?
And that's it! Now take a few minutes to examine the Facebook SWOT analysis again:
| Advantages | Disadvantages | |
|---|---|---|
| Internal | Strengths - Billions of users - High revenue - Strong engineering team - Instant brand recognition | Weaknesses - Product is mature; the next evolution is unclear - Not very diversified as nearly all revenue is from ads - Not a unique offering |
| External | Opportunities - Can acquire other companies or technology as needed - Room to expand on Oculus/VR - Possible expansion into other product and feature areas | Threats - Users are concerned about privacy; low public perception - Government scrutiny into cryptocurrency, privacy, monopoly - Imitation products |
Now that you better understand each category, you can see how this analysis provides a straightforward tool for understanding Facebook's strategic position. But the question remains—how can you use this type of analysis to make better product decisions?
Turning SWOT into strategies
A SWOT analysis is only useful if you can turn it from a theoretical exercise into a concrete strategy for your future. You can do this by evaluating what aspects of a product, market, or competitor to attack, defend, reinforce, or avoid. Each of these categories aligns with the SWOT categories, as shown in the table below:
| Opportunities | Threats | |
|---|---|---|
| Strengths | Attack - - - - - - | Defend - - - - - - |
| Weaknesses | Reinforce - - - - - - | Avoid - - - - - - |
What does each category mean?
Attack means to identify and build on your strengths to leverage specific opportunities. However, this should only be done when it's reasonable to assume that whatever aspect of the product you attack and improve will drive increased market share or support a higher price point. For instance, if a chair is already leading the market in terms of comfort, making the product even more comfortable likely won't increase market share or allow you to charge more.
Defend means to maintain strength advantages. Otherwise, you become vulnerable to the competition. For example, if one of your strengths is customer loyalty, it's important to continue serving existing customers while acquiring new ones. If you prioritize new users' needs and risk the loss of loyalty, you'll be at risk of losing your market share.
Reinforce means to respond to your weaknesses and protect against exploitation by the competition. Devote engineering resources to cleaning up technical debt to prevent limiting future development when it really counts. Spend time researching and ensuring that you have feature parity (this will be explained later in this checkpoint) with your competition.
Avoid external threats that could negatively impact your product. This one may be more challenging because threats are external and hard to control or predict, such as inflation or a decrease in job growth. Continually optimizing your supply chain or cost-to-deliver can help you manage expenses or scale down without a lot of sunk costs. If you manage that well, you may not automatically find yourself in a weaker position during a temporary but unavoidable downturn in the economy.
So for Facebook, the breakdown of strategies may look something like this:
| Opportunities | Threats | |
|---|---|---|
| Strengths | Attack - Offer more features and value to existing users to stay on Facebook - Acquire more companies that increase Facebook's value to users | Defend - Improve security and privacy tools - Work with governments to avoid harmful penalties or legislation |
| Weaknesses | Reinforce - Create new product lines to diversify revenue - Find a way to get VR into everyone's hands | Avoid - Watch out for anti-competitive acts or laws that might affect market competition - Monitor economic trends that may impact ad sales and revenue |
SWOT is a simple tool for analyzing the competitive aspects of your product. It is frequently employed as a first step when developing roadmaps and creating annual strategic plans.
Feature breakdowns
A feature breakdown is another way of approaching competitive analysis. When using this approach, you compare multiple factors for several products. You can then assess how each product fares and determine how they compare. This method helps diagnose the specific areas where your product is better than, the same as, or worse than your competition.
In order to compete, a product must—at a minimum—attain feature parity. This means a new competitor must perform at least as well as the other products in its class.
Imagine you're a product manager hired to create a new social network. You spend some time studying LinkedIn, Facebook, and Twitter as inspiration for what you can do differently. What are some of the dimensions you would want to compare? These may include the following:
- Business model
- Price and profitability
- Compatibility
- Features
- User interface
- Target audience
- Market size
- Marketing messages
- Unique offerings
To get started on your feature breakdown, you'd create a table with a column for each product and a row for each category. To get started, you focus on just a few things—the business model of each platform, their audience, and how they target their message on the home page.
| Business model | Advertising | Advertising | Ads + freemium |
| Target audience | Anybody, focused on groups of friends and family | Anybody, focused on loose social ties, news, and celebrities | Business professionals, salespeople, and recruiters |
| Homepage message | "Connect with friends and the world around you on Facebook.” | "See what's happening in the world right now." | "Welcome to your professional community." |
The differences between these companies quickly become clear. You could keep going, adding more rows as you analyze the aspects of competing products you find most relevant.
Another way to approach a feature breakdown is to compare how each product supports certain functions. This can be as simple as marking a "yes" or "no" for each feature or function, or it can include a way of evaluating how well each product performs, like with a star-rating system. The latter may require a little more explanation, but it makes the point very quickly. You could even add a little text to explain the reasoning behind your ratings, as seen below.
| Private messaging | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐ | ⭐⭐⭐⭐⭐ |
| Mobile application | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐ |
| Customizable business pages | ⭐⭐ | ⭐ (Product only allows the user to add a personalized banner image) | ⭐⭐ |
If only one social network offered private messaging, that could present a significant competitive advantage, regardless of how well the feature worked. However, if all social networks offer private messaging, the quality of each product's messaging system becomes more important, and a star-rating method or similar system can help indicate these differences.
Price/value analysis
A price/value analysis examines the relationship between a product's price and the value the customer receives. In other words, it asks what a customer pays for each product and what they get for their dollar. This analysis isn't always possible because value can be hard to describe. However, a price/value analysis is a powerful comparison tool that can help you assess the competitive landscape.
For instance, say your competitor sells their product for double your price and claims it's worth the extra money because their product has more features than yours. However, a user analysis you run shows that 85% of the customer value is a result of the five main features present in both products, proving that your product is actually providing the better value. This type of comparison can help you decide whether to invest in developing new features or to focus instead on a new marketing message.
When thinking about pricing comparisons, you should always take into account that customers value-shop for some products and price-shop for others. If a customer is comparing TV-streaming services, they are probably value-shopping. So, for instance, a sports fan may be willing to pay extra for more sports channels. When shopping for gasoline, however, customers are more likely interested only in the cost per gallon and will usually shop where gas is cheapest.
When to use each analysis
Now that you are familiar with several competitive analysis tools, it's time to consider when to use each. In general, a SWOT analysis is most useful when you are focusing on a single company or product, whether that's yours or someone else's. The key to a useful SWOT is to dig in and be honest in your evaluation of every dimension: strengths, opportunities, weaknesses, and threats.
When competition is your key concern, a feature breakdown is the more powerful tool. It allows you to see opportunities or weaknesses that might not be visible in a SWOT analysis because you're making side-by-side product comparisons. The key here is to be thorough and consistent in your evaluation process and to choose the right features to compare. A price/value analysis is also useful in assessing the competition. It allows you to consider how the price and value of your product compare to the price and value of other products.
Other competitive analysis techniques
SWOT and feature breakdown are two formal ways to analyze your competition, but there are other less formal ways to learn more about your competition.
Talk to your customers
Your customers are likely paying attention to your competitors. Everyone is looking for better technology—whether it's the next cool app to download or a more robust analytics software for their business. Your customers are likely seeing ads and hearing recommendations from friends. Other companies may even be reaching out to them directly, encouraging them to switch from your product to theirs. Talk to your customers to learn what's happening. Find out what other products are drawing their attention and why.
Talk with your support, sales, and marketing teams
Your peers on the support, sales, and marketing teams can help you learn what's happening outside your office walls. They talk to customers often and probably hear about other products from them. In particular, your sales team will have the most up-to-date knowledge about what other products your customers are considering. Your marketing team is advertising against other products, so they also have a good idea of which products are vying for your customers' attention. Speak with those teams often, and ask for their input on the competition.
News alerts
Use Google News or a similar service to set up a few news alerts with your competitors' names, your own company's name, and other key phrases relevant to your industry. Many companies will make press releases when they launch new features or make changes to their products. You should always keep updated and know the trends, events, and new players in your industry.
The video below by TK Kader provides more tips for improving your competitive analysis.
Activity 🎯
Choose a company you are interested in. Research their product; if there is more than one, choose one specific product to focus on. Perform a SWOT analysis and an attack-defend-reinforce-avoid analysis on the company.
Conduct a feature breakdown analysis comparing eBay's product page to the product pages on the Amazon, Target, and Best Buy websites.
Write your detailed analysis answers in a medium article. Do mention all the website urls and also tag pmcademy.com. It's important that you fully understand your SWOT and feature breakdown analyses. You will need to conduct a competitive analysis in your capstone, so make sure to spend the time now to ensure you feel comfortable doing that.