Competitor analysis: how to do it for your business

Published Friday 17 April 2026

Table of contents

• What is competitor analysis?
• Benefits of a competitive strategy
• Who are your competitors?
• How to conduct competitor analysis
• What to ask when doing competitor analysis
• Identify competitor strengths and weaknesses
• What are your advantages?
• Will more competitors emerge?
• How to use your competitor analysis insights
• Track and improve your competitive position
• FAQs on competitor analysis

Key takeaways

• Identify three to five key competitors (including at least one indirect competitor) and systematically gather information about their strengths, weaknesses, pricing, and customer feedback using free tools like websites, social media, and Google searches.
• Focus your analysis on the four Ps framework—Product, Price, Place, and Promotion—to compare competitors across key business areas and identify specific gaps you can fill or advantages you can highlight.
• Apply your findings immediately by choosing one or two areas where you can differentiate your business, such as targeting underserved customer segments, improving weak points competitors have, or emphasising your unique strengths in marketing.
• Track your competitive position regularly by measuring key metrics like gross profit margin and operational costs against industry benchmarks, and review your competitor analysis at least annually or when significant market changes occur.

What is competitor analysis?

Analysing competitors involves researching other businesses in your market to understand what they do well and where they fall short. By comparing their products, prices and marketing with yours, you can spot opportunities to improve your business and stand out.

Benefits of a competitive strategy

Analysing competitors helps you make smarter business decisions by revealing what works in your market and what doesn't. Your competitors have already solved problems you're facing. They have loyal customers, strong market positions and profitable operations.

Think of them as virtual mentors. This research helps you:

• Learn from their wins: discover what marketing strategies and tactics work in your market
• Avoid their mistakes: identify what hasn't worked so you don't repeat costly errors
• Find your edge: spot what you're doing better and use it as a competitive advantage
• Improve your business: see specific areas where you can strengthen your operations

What you learn feeds into your competitive strategy. You don't need a formal document, but make sure you have a clear competitive strategy in your business plan.

Who are your competitors?

Two types of competitors compete for your customers and revenue:

• Direct competitors: businesses offering similar products or services to yours
• Indirect competitors: different businesses competing for the same customer spending or time

For example, Netflix competes with:

• Direct competitors: Disney+, Amazon Prime and other streaming services
• Indirect competitors: cinemas, cable TV, YouTube, social media and gaming platforms

Think broadly when you identify competitors. Anyone who takes your customers' time or money is competition.

How to conduct competitor analysis

Here's a practical five-step approach to analysing your competitors without getting overwhelmed:

1. Identify three to five key competitors: start with businesses you compete with most directly in your area or market segment. Include at least one indirect competitor.
2. Gather information: visit their websites, read customer reviews, observe their pricing and watch their marketing. Social media and Google searches are free and effective research tools.
3. Document your findings: use a simple spreadsheet to track observations about their strengths, weaknesses and offerings. Keep it straightforward so you'll actually maintain it.
4. Analyse patterns: look for what successful competitors do consistently. Note where they fall short and where customers complain.
5. Apply what you've learned: choose one or two areas where you can immediately differentiate or improve. Small, focused changes often deliver the best results. For example, analysing competitors might reveal that weekends are a peak trading period. In one case study, Saturday and Sunday trading generated 36 per cent of total weekly sales, suggesting a small change to staffing could have a big impact.

What to ask when doing competitor analysis

Competitor research follows a structured approach from broad market overview to specific tactical details. Work through these questions for each competitor you're analysing.

Market landscape questions

Consider these questions about your overall market:

• Who are the major players in your market?
• How is market share divided between them?

Positioning and brand questions

Explore how competitors position themselves:

• How does the market perceive each competitor?
• What's each competitor known for (premium, budget, innovation)?

Product and service questions

Look at what competitors offer:

• What experience do they offer customers?
• How do their products look, feel and function?
• What do they charge and how do customers buy?

Performance questions

Assess how competitors perform:

• What reviews and feedback do they receive?
• How do they deliver their products or services?

For each answer, ask yourself: how can my business differentiate itself here?

Identify competitor strengths and weaknesses

Analysing strengths and weaknesses helps you identify your biggest competitive threats and find market gaps you can fill. Focus on competitors who pose the greatest challenge, particularly those in your region or targeting your exact customer segment.

Common competitor strengths

Look for these typical advantages:

• Distribution power: available in multiple locations and channels
• Brand recognition: strong awareness and customer trust
• Established commercial relationships: strong connections with suppliers and buyers
• Price advantage: lower costs that are hard to match

Common competitor weaknesses

Watch for these common vulnerabilities:

• Brand perception: seen as boring or outdated
• Product quality: poor reviews or cheap presentation
• Customer experience: weak service or support, which can stem from operational issues. For instance, one analysis found that 15% of all stock destruction occurred on weekends with no management supervision, impacting availability and potentially customer satisfaction.
• Market gaps: failing to serve certain customer segments or needs

Use this analysis to identify where you can compete effectively and what makes your business different.

What are your advantages?

Competitive advantages are unique strengths that competitors can't easily copy. Identifying these helps you understand your strongest market position and communicate it clearly to customers.

Legal advantages

These provide legal protection:

• Patents or licences: exclusive rights to produce certain products
• Exclusive contracts: sole distribution rights in your area

Operational advantages

These stem from how you run your business:

• Proprietary processes: unique methods or systems others don't know
• Cost advantages: ability to deliver products or services for less

Strategic advantages

These come from your market position:

• Location benefits: prime positioning competitors can't access
• Relationship advantages: unique partnerships or customer loyalty

Use these advantages in your marketing to highlight what makes you different and why customers should choose you.

Will more competitors emerge?

Assessing future competitive threats helps you prepare for new rivals entering your market. This is especially important in growing industries where success attracts competition.

Ask yourself these questions to evaluate your threat level.

Barrier to entry assessment

Consider how easy it is for others to enter your market:

• How hard would it be for someone new to copy your business model?
• What would it cost them to match your capabilities?

Established player risk

Think about existing businesses that might expand:

• Could existing businesses easily expand into your market?
• How quickly could they replicate your competitive advantages?

Market attractiveness factors

Evaluate what might draw competitors to your market:

• Is your industry growing rapidly (attracting new entrants)? For example, an industry with an elevated midpoint forecast for commodity prices might signal a profitable market that attracts competition.
• Are profit margins high enough to tempt competitors?

If it's hard for others to copy your business, you have a stronger competitive position.

How to use your competitor analysis insights

Act on your competitor research by applying what you've learned to specific business decisions.

• Highlight your strengths in marketing: show what makes you different. If competitors focus on price, focus on quality or service instead.
• Improve your products or services: fill gaps you've spotted in competitor offerings to make yours better.
• Adjust your pricing: use competitor pricing data to ensure you offer good value without leaving money on the table. For example, a competitor might discount by 9.4 per cent of total income. Knowing this helps you decide if matching their prices is sustainable.
• Focus on a niche: target customer groups your competitors ignore. This could be your chance to own a part of the market.

Track and improve your competitive position

After you analyse competitors and make changes, measuring your results helps you see what's working. Track key metrics like gross profit margin and net profit to gauge whether your competitive strategy is paying off.

Beyond high-level profit, you can track specific operational costs against industry benchmarks. For example, you might compare salary expenses as a percentage of sales to an industry benchmark of 20 to 25 per cent to identify a potential cost disadvantage.

Xero's reporting tools help you understand your finances clearly so you can adapt your approach over time. By connecting what you learn about competitors to actual performance data, you can refine your strategy and strengthen your market position. Get one month free.

FAQs on competitor analysis

Here are answers to some common questions about competitor analysis.

What are the four Ps of competitor analysis?

The four Ps are Product (what they sell), Price (what they charge), Place (where they sell) and Promotion (how they market). This framework gives you a simple structure for comparing competitors across key business areas.

How often should I do a competitor analysis?

Review your competitors at least once a year. Do it more often if you're in a fast-moving industry or if a significant new competitor enters your market.

What's the difference between direct and indirect competitors?

Direct competitors sell similar products or services to the same customers. Indirect competitors offer different solutions that meet the same customer needs or compete for the same spending.

Can a small business compete with a larger one?

Yes. Small businesses can compete effectively by being more agile and focusing on niche markets that larger competitors overlook. Your competitor analysis can help you identify these opportunities and play to your strengths.