Analyzing Your Industry: Rivalry and CompetitionPosted by Jessica Oman
When writing a business plan, there’s a handy tool that can help you learn how other companies in your industry are positioned, and give you some insight into where to position your new venture. It’s called the 5 Forces analysis, and it was developed in 1979 by Michael Porter. In this and the following four posts, I’ll break down each component of the 5 Forces analysis – Rivalry, Substitutes, Buyer Power, Supplier Power, and Threat of New Entrants – and hopefully get you thinking more strategically about your new business. In today’s post, I’ll discuss Rivalry.
Also Known As…Competition
First of all: don’t go around boasting that you have no competition, because you do. So no one has come up with a restaurant concept quite like yours? Maybe not, but before you came along, people still got hungry and went to restaurants. They need a reason to come to yours, or they’ll keep going to the same places they went to before.
Who Are Your Competitors?
There are two kinds of competitors: direct and indirect. If you make burgers, your direct competitors are other burger places, maybe pubs or Burger King. Your indirect competitors also sell food, but it might not be burgers; maybe it’s pizza, or seafood, or spaghetti. If you’re writing a business plan, it can be helpful to break down your competition into these two different segments, especially if you’re opening a business in a really competitive sector, like restaurants or car rentals or web design.
How to Analyze the Competition
Assessing rivalry isn’t as simple as listing off all of your competitors. You need to look at what makes each one different from you. Does a competitor charge lower prices? Why? Do they have a broader scope of services? Have they been in business longer? Have they established credibility and customer loyalty?
Once you’ve identified most of your competitors, decide which three are most similar to you, and analyze them in more detail. This exercise should give you some ideas of how you can do something different and give yourself a competitive advantage.
Who are your biggest competitors?