How does competitor analysis shape business strategy?

Competitor analysis shapes business strategy by informing decision-making, identifying opportunities and threats, and guiding resource allocation.

Competitor analysis is a critical component of strategic planning in business. It involves assessing and monitoring the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats. It helps businesses understand their competitive advantages and disadvantages relative to competitors, and generates insights to improve their position in the market.

The first way competitor analysis shapes business strategy is by informing decision-making. By understanding what competitors are doing, businesses can make more informed decisions about their own strategies. For example, if a competitor is offering a similar product at a lower price, a business might decide to differentiate their product, improve its quality, or adjust its price. Similarly, if a competitor is not serving a particular market segment, a business might see an opportunity to fill that gap.

Secondly, competitor analysis can help identify opportunities and threats. Opportunities could include unmet customer needs, emerging markets, or new technologies that competitors are not yet exploiting. Threats could include new competitors entering the market, price wars, or changes in customer preferences. By identifying these opportunities and threats, businesses can develop strategies to exploit the opportunities and mitigate the threats.

Finally, competitor analysis can guide resource allocation. Businesses have limited resources and need to allocate them in a way that maximises their competitive advantage. By understanding where competitors are investing their resources, businesses can make strategic decisions about where to invest their own. For example, if competitors are investing heavily in research and development, a business might decide to do the same to keep up, or they might decide to focus on other areas where they can differentiate themselves.

In conclusion, competitor analysis is a vital tool in shaping business strategy. It provides valuable insights that can inform decision-making, identify opportunities and threats, and guide resource allocation.