Businesses face challenges in every manner. And being in an online business can be more challenging. That is because every business environment, regardless of the industry experiences competition in varied manner. And for competing with others in the market effectively, it is important to analyze the environment and develop practices accordingly to sustain the competition. Getting an insight into the competitive environment can help in deciding the best strategies to stay relevant in a specific industry/ market.
Let’s have a detailed look at competitive environment analysis, its impact on a business, its types, and how to ace in this environment.
What is Competitive Environment Analysis?
A competitive environment is one where various businesses compete with each other with their unique promotional strategies, pricing methods, different marketing channels, etc in a particular market. Analysis of competitive environment consists of studying how competition impacts a business and they adjust their strategies for competing efficiently.
As per the definition of competitive environment analysis, understanding the external factors that affect a business’s ability to compete so that you can stay ahead in the competition. It helps the managers in identifying the key elements of the competitive environment such as market, industry, and competition.
What is the impact of a competitive environment on businesses?
Here's a concise exploration of the ways in which a competitive environment can shape and impact businesses:
1. Market Dynamics and Adaptability
The competitive environment sets the tone for market dynamics. Businesses must be adaptive to changes in consumer preferences, emerging trends, and advancements in technology. An acute awareness of the competitive landscape enables companies to adjust strategies promptly and stay relevant.
2. Customer Behavior and Expectations
Competitors directly influence customer behavior and expectations. Analyzing the market helps businesses align their offerings with customer needs and preferences, fostering customer loyalty and satisfaction.
3. Strategic Planning and Risk Management
Businesses operate in an environment filled with uncertainties. An awareness of the competitive landscape aids in strategic planning and risk management. It allows companies to anticipate potential challenges, mitigate risks, and capitalize on emerging opportunities.
4. Resource Allocation and Efficiency
The competitive environment influences resource allocation. Businesses must optimize their resources effectively to gain a competitive edge. Knowing the strengths and weaknesses of competitors helps in allocating resources strategically for maximum impact.
From shaping market trends to influencing customer behavior and driving innovation, businesses that actively analyze and respond to their competitive landscape are better positioned for sustained success.
Competitive environment analysis
Grasping the impact of external factors on your business's competitive edge is crucial for outperforming your competitor. Here's some common technics for competitive analysis of business environment are as follows:
1. SWOT Analysis
It is a strategic tool used by the businesses for identifying both external and internal factors affecting their business. It consists of analyzing four aspects namely strengths, weaknesses, opportunities, and threats.
2. Porter’s Five Forces
The method of analysis identifies five competitive forces which shape any industry. It involves five elements namely new entrants, power of buyers, power of suppliers, competitive rivalry, and threat to substitutes.
3. PESTEL Analysis
It is used for analyzing economic, political, technological, socio-cultural, environmental, and legal aspects which affect the business and environment.
The competitive environment is common wherein various companies offer similar products/ services targeting the same audience. However, when more businesses sell similar products, the environment gets highly competitive. There are set regulations that businesses in competitive environments must follow.
Types of Competitors
1. Direct Competitors
Direct competitors are the ones that offer similar products. One of the best examples of direct competition is the jewelry brands. They compete directly with each other as they provide the same product and satisfaction to the buyers. One of the prime examples of direct competitors is jewelry business. They offer similar products and the same satisfaction to the buyers. When we speak of direct competitors, we step into the heart of this cosmic dance, where businesses vie for the same cosmic resources: customers, market share, and supremacy in their domain.
Direct competitors, often referred to as "rivals in the same arena," are businesses that offer similar products or services, cater to the same target audience, and essentially vying for the same slice of the consumer pie. These entities operate within the same industry, swimming in the same waters, and often navigating through parallel challenges and opportunities.
2. Indirect Competitors
Unlike their direct counterparts, indirect competitors often operate in different galaxies within the business universe. They may not offer identical products or services, yet they engage with a shared target audience or fulfill similar customer needs. This intricate interplay of shared space and divergent paths creates a cosmic dance where seemingly disparate entities influence one another. Indirect competitors are the ones that offer different products or services which compete. An example of indirect competitors can be companies manufacturing cameras and smartphones as people often use their phones as cameras.
Examples of Competitive Environment
Competitive environment analysis example for Samsung consists of several direct competitors. There are many brands across the globe offering similar phones, cameras, and computers. Samsung constantly competes with other companies but it comes up with newer ideas and innovative technology for attracting the customers and convincing them for buying their product.
McDonald’s has many competitors in the market offering the best of the burgers. Though most of them offer fast food, the food is different. Each of the competitors has a different menu, recipe, and flavors. Therefore, McDonald’s enjoys a loyal customer base that is not going to switch to the competitors. Hence, McDonald’s is also a price maker.
3. American Airlines
In the American airline industry, there are only a few dominating companies. These 3-4 airlines cooperate with one another and decide the prices accordingly.
There is no competitive environment in the railway industry as there are no other companies. The public service is provided by the government and no partners or private companies can run them.
Types of Competitive Environment
When a business performs competitive environment analysis, it helps them function efficiently in a competitive market. Competitive business environment analysis not only helps in gauging industry trends but also with policy changes, and complying with the market regulations. This helps a business make informed decisions. Let’s have a look at the types of competitive business environments:
1. Pure Competition
Pure competition, also known as perfect competition is a market that has several competing organizations providing the same product/ service. In pure competition, rival businesses often have a huge customer base and little power over the market. It is the supply and demand that drives the product prices. Therefore, companies have limited influence on market prices. An example of pure competition is farmers offering milk/ grains to the local market won’t change the fixed price and they have to agree with the existing standards.
2. Monopolistic Competition
In a monopolistic competitive environment, businesses offer different products/ services. They might be similar or serve the same purpose but buyers can differentiate between them on the basis of quality, price, and features. Unlike the perfect competitive environment, here, businesses are the price makers. They influence the price of the products/ services. The company uses marketing and advertising tactics for promoting its product and assuring the buyers of high quality. They provide unique products for justifying the price.
In an oligopoly market, there are fewer businesses. The competitive environment is dominated by a few sellers. The market is stable as more often than not, companies collaborate for fetching higher returns from the market. The companies independently determine the pricing and production policies. In an oligopoly market, mergers and acquisitions between the market players is a common scenario. For example, the social media market can be considered an oligopolistic market. There are fewer platforms and channels that dominate the market.
In a monopolistic environment, there is only one company that produces a specific product. These companies don’t face competition as there is no substitute for the product/ service. Businesses in monopolistic markets can decide the product pricing and also create barriers for the new companies that try to enter the market. An example of an oligopolistic market is companies that offer services like public utility, electricity, water, and gas.
In this competitive arena, a business can significantly benefit from competitive environment analysis. By gaining an insight into the competitors, market trends, and industry practices, a business can create its marketing and pricing strategies efficiently.
How PriceIntelGuru’s Competitive Environment Analysis Can Help
1. In-depth Insights into Competitors
Competitive pricing analysis allows you to peer into the galaxies of your rivals, discerning their strategies, strengths, and weaknesses. By dissecting their cosmic pathways, you gain a holistic understanding of their maneuvers and can strategically position your business for advantage.
2. Greater Opportunities and Threats
This analysis illuminates celestial bodies of opportunities and threats that may shape your trajectory. By identifying cosmic shifts in consumer preferences, market trends, and emerging technologies, you can prepare your business to harness opportunities and shield against impending threats.
3. Orbiting Customer Behaviors
Understanding customer behaviors is like deciphering cosmic codes. Competitive environment analysis enables you to fathom why customers gravitate toward certain cosmic entities and their offerings. Armed with this knowledge, you can tailor your own cosmic approach to align with their desires.
Navigate, Direct and Drive Your business with PriceIntelGuru
Ready to outshine the competition? Book a demo with PriceIntelGuru today and revolutionize your strategy with powerful competitive analysis that not only helps you know who's out there, but also decipher the cosmic currents, map the celestial bodies of opportunity, and chart a trajectory that propels your business toward its ultimate destiny – let competitive environment analysis be your telescope to the stars, revealing the galaxies of success that await your transcending journey.