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Ask About Competition

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By | May 26, 2012

Dear Toolkit,

I applied for a small loan to do marketing for my business. My banker wants a report from me showing how I evaluate my competition. I need to do this before he'll consider my loan request, but I'm not quite sure how to go about it. Can you help?

Snack Attack Jack

Dear Jack,

Your competitors are not always who you think they are. And your banker is wise enough to know that an unfocused marketing dollar is ill spent indeed.

For example, if you are a manufacturer of popcorn products, your direct competitors are undoubtedly other brands of popcorn in the market. But what about tortilla chips, peanuts, snack mixes, or potato chips? And what about rice cakes, candy bars, cake/pie items, rolled candy, gum, or frozen confections? The target consumer may be making a choice among all these items for a "snack" purchase, including popcorn! Or the target buyer may even be considering a drink purchase among alternatives for a "snack."

A company must narrow its choices and decide which industry, product, or service categories, brands, geographic areas, channels of distribution, etc., to compete in. Without this knowledge and analysis, your marketing programs will not be effective and efficient, particularly if you have a very limited budget. And since it's going to be your banker's dollar, he needs to know it will be effectively spent.

It may help to think of your competitors as a series of levels, ranging from your most direct competitors to those who are more remote:

First level would be the specific brands that are direct competitors to your product or service, in your geographic locality. In many cases, these competitors offer a product or service that is interchangeable with yours in the eyes of the consumer (although of course you hope you hold the advantage with better quality, more convenient distribution, and other special features). For example, if you operate a local garden center, you may compete against the other garden centers within a 10-mile radius.

Second level would be competitors who offer similar products in a different business category or who are more geographically remote. Using the example of the garden center, a discount chain that sells garden supplies and plants in season is also your competitor, as is a landscaping contractor who will provide and install the plants, and a mail-order house who sells garden tools and plants in seed or bulb form. None of these competitors provides exactly the same mix of products and services as you, but they may be picking off the most lucrative parts of your business.

Third level would be competitors who compete for the "same-occasion" dollars. Inasmuch as gardening is a hobby, third-level competitors might be companies that provide other types of entertainment or hobby equipment; inasmuch as gardening is a type of home-improvement, competitors might be providers of other home-improvement supplies and services.

Just as in the case of popcorn we examined above, one tortilla chip brand competes directly with other tortilla chip brands in the tortilla chip segment of the salty snacks category. It also competes with all other salty snacks such as potato chips, fried curls, nuts, and other forms of salty snacks--including popcorn. It may also compete with non-salty snack items like candy bars, cookies, and ice cream. Other competitors may include an even broader definition of "snack occasions," to include beverages and sandwiches.

The point of this analysis is to consider carefully, from the buyer's point of view, all the alternatives that there are to purchasing from you. Knowing that, you can attempt to make sure that your business provides advantages over your competitors, beginning with those who are the most directly similar to you. In fact, you can even borrow ideas from second- or third-level competitors in order to compete more effectively against your first-tier competitors.

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