Every business thrives by offering value to its customers and earning profits to sustain the industry. A business model tries to reflect this essence in a clearly defined structure. A business model highlights how a company creates, delivers, and captures value for its customers. It acts as a framework to decode the firm’s profit strategy. It includes the USP, key resources, key processes, and the profit formula of a business.
A business model is a real competitive advantage for any business. A business model that helps and sustains a business gives it an edge over its competitors. Hence, companies study business models while doing competitive analysis.
Today we will understand what business model competitive analysis is, why it is important, and how to leverage it for business success.
What Is Competitive Analysis?
A competitive analysis is in-depth research and examination of your business competitors. It aims to bring forth:
- Main players or companies in the specific industry
- Profit strategies
- Key resources and processes
These three factors are crucial to business success. Firstly, you need to know who you are competing against. Then, you need to know their profit strategy. Do they earn by cost minimization or focus on a niche market to offer a premium-quality product? A business’s profit strategy is what matters the most when it comes to competitive industries because the resources and processes can be replicated. However, strategy implementation is subjective and can have different results for companies.
A business strategy comprises internal, external, and dynamic factors, which, in a nutshell, give a competitive advantage and define a firm's performance. Internal factors include firm resources and policies. External factors include the USP and the company’s position in the industry. Contrarily, dynamic factors include creating unique resources to disrupt the market. One needs to analyze all the factors to get a comprehensive view of an industry. It is advisable to conduct such an analysis every year to stay updated on competitors and avoid sudden shocks. But what could be the benefit of studying your competitors so closely?
Why Do Competitive Analysis?
Competitive analysis has been part of running businesses. It is one of the crucial elements of the planning stage. It gives a head start to many firms by giving an overview of what others are doing and what can be replicated. In addition to this, a firm runs a competitive analysis to:
- Identify USP: "USP" stands for "unique selling proposition." What sets you apart from your competitors? What is your market positioning? Why would customers choose you over your competitors? You need to know the USP of your competitors to understand why customers prefer your product. It will give you an understanding of customer needs and help you define a USP for your business.
- Estimate Entry Barrier: Not every industry makes it easy for firms to start their businesses. For instance, as easy as it is to get into the food industry, it is difficult to get into the oil and gas industry. You need to identify the level of entry barrier and barrier also. You need to know why the industry you are dealing with is easy or difficult to get into. This will help you to choose your USP and pick resources that cannot be replicated.
- Customer Expectations: What do other businesses offer that brings in more customers and loyalty? What are some of the most talked-about product features of your competitors? Why do people prefer other brands to yours? All these questions help you identify the customer expectations that help you enhance customer satisfaction.
- Find Market Gaps and Opportunities: What is your strength that brings in customers for you? What are some untapped potential/ resources in the market that not many competitors are using? Why are some or more companies failing or succeeding in the industry? You need to find the strengths, gaps, and opportunities to sustain yourself in the industry. Similarly, you could look for risks in the market and your weaknesses that competitors can leverage on.
Overall, the competitive analysis makes businesses proactive by preparing them for any shocks and giving them a window to increase their profits. Anyways, a reactive business finds it much more difficult to analyze and prepare a strategy due to a lack of time and resources in the end moment.
For instance, what if you discover a new subsidiary of your competitors that will increase their profits by 8% during the competitive analysis? This will give you enough time to prepare and execute protection measures.
But now that we have discussed what and why, let us look at how to conduct a business model competitive analysis. It is a simple 4-step process, which might take a few weeks or months of deep research depending on its extensiveness, that gives you an edge and a head start in the industry.
How Do You Analyze Your Competitor’s Business Model?
A business model study is a small part of competitive analysis. Competitive analysis is a broader study. Here is a simple 4-step process to analyze your competitor’s business model. It revolves around studying your competitors' USPs, processes, resources, and strategies.
You start by identifying the competitors in your business. This includes direct, indirect, and substitute competitors.
These will be companies or firms that you will closely study to understand their business model. Opt for both the top and bottom firms to identify success and failure. We need to identify what leads to a company's profits and losses.
The next step is to look into the subsidiaries if any. These give a wider scope of competitors to study. Companies like Tata and Reliance have many subsidiaries. It is their multiple subsidiaries that sustain their business. Here again, look for subsidiaries that make a profit and those that serve no purpose. Identify the existence of each one and the role that they play for the business firm.
For instance, Parle-G is one of the most popular products under its product line by Parle. However, it is not a profit-making product for the firm. Yet the company continues to sell it in the market to cater to market demand and build its brand image. It makes money and recovers the costs with other product lines.
Analyze the Competitor's Technology Stack
Just like a business strategy, technology in itself can be replicated, but its derivatives cannot. Technology is just an enabler, and it totally depends on the business and how they use and leverage it.
So, look into the tech stack and other technology adoptions of the business that save them money. Understand the costs and implications of these in your business. The vital part of the technology is its implementation, not the technology itself.
Study Competitor Resources
The last step is to analyze competitors’ resources using the VRINE model. It stands for value, rarity, imitability, non-substitutability, and exploitability and is used to understand the competitive advantage of resources. It simply requires you to answer four questions:
- Is the resource valuable? It should help meet market demand and protect against market uncertainties.
- Is the resource rare? It should be neither scarce nor widely available to competitors.
- Is the resource inimitable or substitutable? It should be difficult to replicate and yield similar benefits.
- Is the resource exploitable? If all the above criteria add up to a positive result for the firm, then look to see if it is exploitable.
Be it tangible or intangible, you should run a VRINE test on all the resources to understand their performance and competitive implications.
Strategic leadership can be acquired only by combining the right resources and capabilities. One must develop a strategy while keeping resources in mind and defining a business positioning. This acts as a competitive advantage to boost the firm’s performance.
Every company analyzes its competitors in order to stay current and ahead of the competition. The three core factors to get an edge over a competitor are defining strategy, resources, and firm positioning that can not be replicated. Strategy and positioning are hard to copy due to various factors, including each firm's subjective implementation and policy differences. The resources and processes need to be disruptive in nature so that competitors cannot imitate them.
What is competitive analysis?
A competitive analysis is in-depth research and examination of your business competitors. It aims to bring forth the main players or companies in the specific industry, profit strategies, and key resources and processes.
How do I analyze a competitor's business model?
There is a simple 4-step process to analyze your competitor’s business model:
- Identify Competitors
- Examine Subsidiaries
- Analyze the Competitor's Technology Stack
- Study Competitor Resources
What is the VRINE model?
The VRINE model stands for value, rarity, imitability, non-substitutability, and exploitability and is used to understand the competitive advantage of resources.