A competitive analysis is a strategic process used by businesses to identify and evaluate their competitors' strengths, weaknesses, and market positioning to gain a competitive edge. By examining factors such as competitors’ marketing strategies, product offerings, target audiences, and online presence (including SEO performance), businesses can uncover opportunities to improve their own strategies. This analysis is crucial for identifying gaps in the market, benchmarking performance, and crafting data-driven tactics to outperform rivals.¹

Imagine you’re the owner of your neighborhood’s favorite local bakery. One morning, you notice the rival bakery across the street has a line out the door. Obviously, their pastries are nowhere near as good as yours, so you can’t fathom why they’ve suddenly drawn a crowd. You send someone over to investigate, and they report back that the rival bakery has invented the “bruffin,” a delectable fusion of a rich brownie and fluffy muffin. The trend has taken over social media, you’re quickly losing customers, and you’re panicking about what to do next. Do you double down on the classic baked goods you’ve always done best? Do you replicate their bruffin and hope some customers will be swayed by your shorter lines? Do you try to come up with your own groundbreaking pastry crossover? 

This dilemma might seem small-scale, but cases like these are at the heart of competitive analysis—the art and science of understanding what your rivals are doing, why they’re thriving, and how you can carve out your own path to success. It’s not just about copying trends or out-pricing your rivals; it’s about identifying opportunities, anticipating competitors’ next moves, and finding your business’ unique edge. From small-scale shops to global giants, businesses use competitive analysis to help them thrive in a game where the rules are always changing. 

In practice, a competitive analysis usually involves four key steps:¹

1. Identify your competitors. Competitors in the field come in many forms:

• Direct competitors: Any businesses that sell the same or similar products and services to your same customer base in the same geographic region. 
• Secondary/indirect competitors: Businesses that offer different products and services than your business, but within the same business category. 
• Substitute competitors: Businesses that sell products and services to the same customers and geographic areas as your business, but offer different products and services.¹

2. Gather information about your competitors. The “four Ps” often used in marketing to evaluate competitors include:

• Product: How do the competitors’ products compare to those of your business? 
• Pricing: What are the pricing schemes and cost structures of the other business’ products and services?
• Place: Where is your competitors’ geographic selling region?
• Promotion: How are other businesses marketing to and interacting with their customers?²

3. Analyze your competitors’ strengths and weaknesses: This typically involves a meeting within your organization where competitors are ranked based on their comparative performances, strengths, and weaknesses.¹

4. Determine your competitive advantage: Understanding the strengths and weaknesses of the competition can help you strategize brand image, promotions, and product development. That way, you can target your product and marketing to fill any gaps in the market.¹

SWOT Analysis: A strategic planning tool that assesses four key elements—strengths, weaknesses, opportunities, and threats—to inform decision-making and improve competitive advantage in business and other domains.

Market Share: The percentage of total market sales held by a particular company over a defined period of time. It’s calculated by dividing the total company sales by total industry sales and provides a general idea of the size of a company in relation to its market and competitors. Usually, growing market share is a positive sign, as it means the company has increasing power in the market.³ 

Pricing Strategy: A firm's policy for determining what it will charge for its products and services. Strategic pricing strategy approaches are usually sorted into three categories: cost-based pricing, competition-based pricing, and value-based pricing.⁴ 

Overcrowding: A market situation in which there is a lot of competition between companies trying to sell similar products or services. This usually occurs when there is high demand, and the more well-established businesses can “crowd out" the smaller players.¹ 

Undercut: A strategy where businesses will intentionally set their prices lower than their competitors, either temporarily or permanently, to gain a competitive advantage and attract customers. Although this strategy can be successful in the short run, rival companies may respond by lowering their own prices, leading to a price war.¹ 

Data Privacy: Sometimes referred to as information privacy, it is the idea that people should have control over how their personal data is collected, used, and stored. In today’s world of social media and smart devices, an abundance of personal information on consumers is collected, thus data privacy has become an increasingly important topic in business ethics. 

The history of competitive analysis dates back to early commerce practices, but also to much higher-stakes contexts like warfare, where understanding competitors could mean life or death. In The Art of War, published in the fifth century BCE, the military strategist Sun Tzu emphasized the importance of knowing one's competition by understanding their strengths and weaknesses. Sometimes, this meant espionage, tracking the movements of the enemy troops, or complex reconnaissance missions. Sun Tzu, as well as later commanders, analyzed the capabilities of their forces relative to their enemies, considering factors like the quality and quantity of soldiers. In longer wars, resource availability was often an issue, and leaders could craft their military strategies to exploit the weaknesses of their enemies’ supply chains while boosting their own support. In viewing the market as a space to dominate much like the battlefield, these ideals may have inspired later business leaders looking for a framework to perform their own analyses.⁵

In the field of business, competitor analysis formally emerged in the mid-twentieth century, around the same time that other management strategies and structures were being developed. During the 1960s and 1970s, the rise of modern business strategy included frameworks like Michael Porter’s Five Forces Framework, which provided structured methods for evaluating industry competition and understanding the external forces impacting businesses.⁶ As technology advanced in the late 20th and 21st centuries, competitive analysis expanded to include a variety of new digital tools, marketing platforms, and data collection possibilities. 

In the early 2000s, business leaders like Clayton Christensen developed tangential theories like "disruptive innovation," which explains how seemingly smaller, less advanced companies can disrupt established market leaders by targeting underserved customer segments with simpler, more affordable products. Just as competitive analysis can help small organizations identify opportunities for market disruption, Christensen’s strategy often forces larger players to adapt or lose market share. 

Of course, we can’t look ahead into the future without acknowledging the influence of AI. Many algorithms run on big data, and as the amount of information collected on both consumers and business competitors continues to rise, the complexity of competitive analyses is also escalating. Increasingly intelligent algorithms paired with more sophisticated data collection on competitor behavior create more options for detailed competitor analysis, more accurate prediction models, and a greater ability to adapt to changing markets in real-time. 

Sun Tzu

Born in 544 BC, this Chinese military general is credited as the author of The Art of War, the influential book on military strategy. His writing on strategy and competition, though ancient, outlined principles of human behavior, strategic positioning, and decision-making that have profoundly influenced competitive analysis in both military and business contexts to this day.⁵ 

Michael Porter

Porter is a prominent economist, academic, and professor at Harvard Business School, renowned for his influential contributions to the fields of strategic management and competitive analysis. He is often considered one of the most important thinkers in modern business strategy and SWOT analysis, and his work has shaped how businesses, governments, and organizations approach competition, industry dynamics, and economic development.⁶

Clayton Christensen

As an entrepreneur and business professor focused on competitive strategy, Christensen is most famous for developing the concept of disruptive innovation, which has become a cornerstone in understanding competition and market dynamics. His work fundamentally changed how companies approach competitive analysis, innovation, and long-term growth strategies.⁷

Richard Thaler

Nobel Prize-winning economist and one of the founders of behavioral economics, Thaler’s work focuses on decision-making and market behavior. His theories such as nudge theory have influenced competitive analysis by emphasizing how cognitive biases and behavioral tendencies affect consumer choices. Businesses use his insights to design strategies that influence customer behavior—like pricing, product design, and marketing tactics—as well as anticipate and respond to the non-rational elements of competitor and consumer behavior.

Competitive analysis, although historically used in warfare, is widely used in business, and can play a major role in how organizations shape their marketing, development, and sales strategies. 

Cognitive Bias & Decision-Making Heuristics  

Here at TDL, we talk a lot about how we can use behavioral science, and specifically our understanding of cognitive biases and decision-making heuristics, to better understand the world we live in. Businesses conducting a competitive analysis can use this same lens to make sense of competitor dynamics and consumer behavior, deepening the psychological and social dimensions of their strategies. The economist Richard Thaler is well known for his research outlining the impacts of cognitive biases on our real-world choices, particularly in the business world, and describes how they can lead people to make poor choices. 

For example, a company might notice that its competitors have avoided making any major changes to their product or entering a high-risk segment of the market. At first, it might appear that the competitors have some additional information or are certain that the market is particularly weak. While this could be the case, an awareness of loss aversion, a tendency to prioritize avoiding losses over acquiring equivalent gains, could reframe the situation. Perhaps the rival companies are more keen on avoiding a loss than they are eager to reap the potential reward of pursuing a gap in the market. Understanding the complex and sometimes irrational forces behind business decisions might motivate you to pursue further analysis on the topic or reevaluate your strategy. 

Risk Mitigation 

Besides finding opportunities to improve their products, by conducting competitive analyses on their competitors, businesses can also anticipate potential threats in the market. These could come in the form of startups looking to fill a gap, larger companies expanding, or the emergence of a new technology. If you, as a business owner, can gauge where other companies are headed, you can adopt different strategies or develop new products to stay ahead of them. Competitors could also be employing new pricing strategies. If these shifts are caught early enough, you can preemptively adjust your own prices or prevent a price war, where multiple companies repeatedly lower their prices to gain market share, usually by undercutting each other.¹

A thorough competitive analysis could also reveal areas of overcrowding, meaning that there are too many companies or products in the market. Understanding where demand is slowing or supply is rising too quickly can be beneficial, as businesses can shift their strategies to stabilize the market and avoid overinvesting in any vulnerable areas.¹

Encouragement of Innovation

Analyzing competitors’ products or services isn’t exclusively about learning how to best undercut others in the market. Just as athletes often thrive in competition, some of the best innovation comes from companies battling it out to develop the best services, products, and prices. When innovators are up to date on their competitors’ most cutting-edge developments, they may also be inspired. If companies see what’s working well for others, they can not only adopt those same strategies but build on them.¹ For example, when touchscreen devices first took off, companies like Apple noticed their success and continued developing phones with touchscreen capability. No one needs to start from scratch or work in isolation; instead, staying updated on the latest market trends and tech advancements can benefit everyone. 

No business tool is perfect, and a competitive analysis is no different. These analyses are largely conducted by real humans, who are themselves imperfect and prone to crossing ethical boundaries and relying on mental shortcuts. 

Ethical Boundaries in Data Collection

Competitive analysis often involves gathering data on rivals, which can raise ethical concerns. For instance, practices like corporate espionage, scraping competitors' online data, or leveraging confidential information may blur the line between legal research practices and unethical behavior. While some businesses may rationalize questionable actions, and many laws have potential loopholes or gray areas, there are still plenty of clear ethical boundaries ripe for crossing during a competitive analysis. For instance, some companies have discovered undercover customers or even undercover employees, working from the inside to learn the ins and outs of how a competitor runs their business and reports back.⁸ This is part of why many companies have non-compete agreements, which can range drastically but often involve a contract that specifies that employees won’t work for their company’s direct competitor, they’ll protect confidential information, and they won’t let the competition benefit directly or indirectly from any of the specialized skills that an employee might’ve gained during their employment. 

Confirmation Bias and Analysis Paralysis

Behavioral scientists have frequently cited the risks of confirmation bias, our underlying tendency to focus on, and give greater weight to, the evidence that fits within our existing beliefs. Anyone conducting a competitive analysis is equally vulnerable to this bias; analysts might unconsciously limit the type of data they collect or alter their interpretation of their data to fit the preconceived notions they have about competitors. If companies go into competitive analysis with preexisting ideas about the marketplace and its key players (which they’re likely to do as experts in the field), then the results may be skewed. This can lead to flawed strategic decisions. Additionally, an overabundance of data on competitors, their histories, and their potential future paths may be overwhelming for decision-makers. Too much information paired with a lack of actionable insight may lead to analysis paralysis or choice overload, where too many options for how to best proceed may actually make it harder for leaders to pick a path. 

Perpetuation of Monopolistic Behaviors

In a culture dominated by capitalism, it’s worth noting the problems that may come from a process that pins companies against each other. Competitive analysis may inadvertently support practices that lead to the edging out of smaller startups or more vulnerable players in the market. Behavioral economists argue that by focusing on beating direct competitors, businesses might unintentionally undermine these smaller players, reducing diversity in the market and harming consumer choice in the long run. With more options available to consumers, and more competition allowed into the market, there’s often more room for businesses to experiment and more opportunities for customers to find what meets their unique needs. If competitive analysis is used to drive out small businesses, there may be consequences for the market as a whole.⁹ 

Netflix vs. Blockbuster

If you’re old enough, you might remember the days of Blockbuster’s dominance in the video rental scene. You may even remember what it felt like to walk around the video store’s aisles on a Friday evening, carefully selecting the movie you would bring over to your friend’s house that night, or the pain of remembering you’d left the movie at their house and would now incur a late fee. These feelings might now seem foreign in a world of instant streaming, and you’ve likely heard the stories of how Netflix became the new powerhouse of TV and movie-watching, eventually driving Blockbuster out of business. 

A large part of Netflix’s success came from following a competitive analysis framework, which helped the company identify market weaknesses, target emerging consumer behavior, and differentiate themselves. Netflix's early strategy involved honing in on the pain points of Blockbuster’s model, which heavily relied on physical retail stores and late fees, both of which frustrated customers. Through competitive analysis, Netflix determined how important convenience and flexibility were to customers, and they positioned themselves as a straightforward, customer-friendly alternative.

This aspect of convenience that Netflix honed in on differentiated them from Blockbuster, first with the ease of mail-in returns and eventually the ultimate convenience of the remote control. Through further analysis, Netflix anticipated the shift toward on-demand and streaming content before it became mainstream (get it?). Unfortunately for Blockbuster, they underestimated the pace of digital adoption and remained focused on physical rentals. Netflix thus secured an advantage by tackling this digital aspect of the market before its rivals were able to.¹⁰

Apple vs. Samsung

Apple and Samsung seem to be locked in an eternal battle to be the top player in the smartphone market—but the truth is that they’re both successful. While their teams likely conduct many thorough competitive analyses to help them determine how to pull ahead of their opponents, their parallel power has actually helped both of them, as they each fill in for the other’s weaknesses. 

Apple has positioned itself in the market as a premium brand, differentiating its products from Samsung’s with sleek features and an emphasis on privacy and security, allowing them to also use premium pricing. When Apple uses competitive analysis to monitor Samsung’s product releases, it can ensure that its newest updates stand out from its competitor’s. 

From Samsung’s side, they’ve attempted to target a broader audience by offering a wide variety of products, from the premium Galaxy devices to more budget-friendly models. The company has likely discovered through its competitive analyses the opportunities for intervention with cutting-edge technologies, like foldable screens and world-class cameras. Samsung has also differentiated itself from Apple, which emphasizes the universality of its products, by championing customization options and compatibility with other Android systems.¹¹ As the two companies keep a close watch on one another, playing off each other’s differences may be what has helped both of them succeed. 

What is a Cost-Benefit Analysis? 

Similar to competitive analysis, a cost-benefit analysis is a strategic planning tool used by businesses to help them analyze potential future actions. Explore this reference guide to learn more about the background, impacts, and potential shortcomings of a cost-benefit analysis. 

Protecting Your Projects from Cognitive Bias 

We’ve seen how cognitive bias can play a role in the competitive analysis of rivals, but bias can also play a major role within our own organizations. Read here to learn more about how agile management provides a strategy to stay on track and protect your projects from cognitive biases.

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