How to Write a Competitive Analysis for a Business Plan + Example

When starting a new business knowing your competition isn’t just important, it’s necessary. A competitive analysis gives you insight into the competitive landscape, so you can position your business strategically. This section of your business plan will help potential investors and stakeholders understand how your business fits into the market and what makes it unique.

A good competitive analysis goes beyond a listing of competitors. It identifies opportunities, pinpoints challenges and provides valuable insights into how your company can carve out its niche. In this guide we’ll take you through the process of writing a competitive analysis for your business plan outline, step by step, with useful data and expert opinions.
 

What Is a Competitive Analysis?

A competitive analysis is a detailed look at your business rivals in the market. It involves identifying direct and indirect competitors, assessing their strengths and weaknesses and understanding their strategies. The goal? To figure out how to differentiate your business and position it for success in the market.

In simple terms it’s about finding out what works (and what doesn’t) for your competitors and using that to your advantage. A solid competitive analysis helps you spot opportunities and risks so you can fine tune your business strategy.
 

Why Is Competitive Analysis Important?

A competitive analysis serves several purposes:

1. Market Awareness: It’s your window into the competitive environment, so you can understand where competitors are and what drives their success or failure.
2. Strategic Positioning: By knowing your competitors’ strengths and weaknesses you can craft a strategy that positions your business.
3. Risk Management: Understanding weaknesses in your competitors allows you to anticipate challenges that could impact your business.
4. Opportunity Recognition: A good analysis helps you find gaps in the market where your product or service could thrive.

According to Statista, 42% of small businesses fail due to lack of understanding of their market and competition. This stat highlights how important competitive analysis is for a business strategy.
 

How to Write a Competitive Analysis for Your Business Plan

Writing a competitive analysis involves research and strategic thinking. Below is a structured approach to follow.

1. Identify Your Competitors

Before you get into the nitty gritty of each competitor you need to distinguish between direct and indirect competitors:

• Direct Competitors: These are businesses that offer the same or very similar products or services. If you’re starting a coffee shop, other coffee shops would be your direct competitors.
• Indirect Competitors: These businesses provide alternatives that satisfy the same customer need. For example, a smoothie bar or even a fast-food restaurant that serves coffee would fall into the indirect category.

Start by making a list of these businesses, categorize them based on their proximity to your offering.

2. Research Each Competitor

Now you need to research your competitors and gather information. What you need to know includes:

• Company Overview: Who are they? How long have they been in business? What’s their reputation like?
• Product/Service Offerings: What do they sell and how does it compare to your product or service?
• Pricing: What price points are they using? How do they structure their pricing (e.g., premium pricing, budget-friendly)?
• Target Audience: Who are their customers? Are they targeting a broad demographic or a niche market?
• Sales and Marketing Strategies: How do they market themselves? What channels are they using and what’s their approach (online ads, word of mouth, social media presence)?
• Customer Reviews: What do customers think of their offerings? Are there consistent complaints or compliments?
• Financial Performance: Where available consider competitors’ revenue and profit margins to gauge their market success.

This will give you a clear picture of who you’re up against and how they’re succeeding or failing.

3. Evaluate Their Strengths and Weaknesses

Once you’ve gathered the data, the next step is to evaluate each competitor’s strengths and weaknesses. Ask yourself:

• Strengths:
  • What sets them apart? Are they known for quality or innovation?
  • Do they have a large customer base or brand loyalty?
  • Are they good at customer acquisition or retention?
• Weaknesses:
  • Are there common complaints from customers, such as poor service or overpriced products?
  • Do they have limited product variety or outdated offerings?
  • Are they missing key features that you can take advantage of?A competitive analysis isn’t just about identifying strengths of competitors—it’s about spotting where they fall short, too. According to a  McKinsey report, 60% of companies fail to innovate in ways that meet evolving customer demands. This is an opportunity for you to outpace them by offering something better.

4. Look at Market Position and Competitive Advantage

Examine the position of each competitor in the market. Are they leaders, challengers, followers or niche players? Understanding their market share and strategy will give you insights into their approach and weaknesses.

• Market Share: How much of the market do they control? Larger competitors often have economies of scale but may also struggle to adapt to changes in the market.
• Competitive Advantage: What unique resources or capabilities do they have? This could be anything from a proprietary technology, a unique customer experience, a powerful brand or a distribution advantage.

Your goal is to figure out how your business can either compete directly or carve out a unique space in the market.

5. Identify Market Gaps and Opportunities

Now look for gaps in the market that your competitors are not fully addressing. These gaps could be opportunities for your business to differentiate itself.

• Pricing Gaps: Is there room for a more competitively priced option or could you offer a premium alternative to existing products?
• Customer Needs: Are there customer pain points that your competitors have overlooked? Can you address them?
• Service Gaps: Maybe your competitors don’t offer certain conveniences or features—this could be your chance to stand out.

The key is to think about what your competitors are missing and how you can fill that need better.

6. Create a Competitive Matrix

A competitive matrix is a useful tool to compare the different aspects of each competitor. By laying out competitors against key criteria you can see clearly where each stands. Here’s an example of what it might look like:

This table allows you to visually compare competitors based on various attributes, so you can assess where you can win.

7. Develop Your Competitive Strategy

Now that you have all the information, it’s time to develop your strategy. How will you compete with these companies?

• Differentiation: Will you offer a unique value proposition, e.g. better quality or service?
• Cost Leadership: Will you target price-sensitive customers with a more affordable option?
• Niche Strategy: Are you serving a specific market segment that competitors don’t?

This is where your analysis leads to action. Based on the gaps you’ve identified and your business strengths, create a plan to outperform your competitors.
 

Example of a Competitive Analysis

Here’s a competitive analysis for a fictional coffee shop, Bean & Brew Café, in a medium-sized city. Let’s get started.

1. Competitors

• Direct Competitors:
  • Espresso Express: A popular chain with quick service and many drink options.
  • Java Junction: A trendy café with organic and fair-trade coffee.
• Indirect Competitors:
  • Starbucks: A global coffee giant with a strong brand.
  • Local convenience stores: Basic coffee at lower prices.

2. Competitor Info

• Espresso Express:
  • Known for fast service and consistent quality.
  • Price points: $3-$6 per drink.
  • Target Audience: Professionals looking for quick high-quality coffee.
  • Reputation: Fast but impersonal service.
• Java Junction:
  • Specializes in organic and ethically sourced coffee.
  • Price points: $4-$7 per drink.
  • Target Audience: Environmentally conscious individuals and young professionals.
  • Reputation: Cozy, community-focused atmosphere.

3. Strengths and Weaknesses

• Espresso Express:
  • Strengths: Fast service, product quality, multiple locations.
  • Weaknesses: Higher prices, limited menu.
• Java Junction:
  • Strengths: High-quality ethically sourced coffee, community reputation.
  • Weaknesses: Higher prices, limited locations.

4. Market Position

• Espresso Express: Leading market share with a established brand.
• Java Junction: Focused on ethical coffee but a smaller niche player.

5. Gaps

• Gap: Bean & Brew Café can target customers looking for affordable high-quality coffee in a welcoming community-focused space—what both Espresso Express and Java Junction lack.

 

6. Competitive Matrix

 

7. Competitive Strategy

Bean & Brew Café will differentiate with quality at mid-range price and excellent customer service and community focus.

This competitive analysis helps Bean & Brew Café to position itself against competitors and focus on customer experience and affordability and fill gaps in the market.