How To Evaluate Your
Small Business Competition


by Tom Egelhoff

Before we get to your competitors, there are a couple of things we need to define. You need to understand the difference between direct and indirect competition.

Direct competition is a company that offers the same products and services to the same market you do. Indirect competition is a company that offers the same products and services to a different market than you do.

McDonald's, Wendy's, and Burger King are direct competitors of each other. Dairy Queen, Pizza Hut and Domino's would be examples of their indirect competitors.

If you are a retail store, your main competition, most likely is the Wal-Marts and K-Marts of the world who have deep pockets and buying power. (See: The Robinson-Patman Act) If you are in the service business, your competitors are the ones with the most loyal customers.

Look at all aspects of the competition. Where are they located, their products and services, how do customers get the product, how does their pricing compare, can they do things they can't do? Are they direct or indirect competitors?



Who And Where Are Your Competitors?

The first place to look is in the Yellow Pages. Your serious competitors should all be there. The ones that aren't probably won't be around too long. Where are they located in relation to you? What are the traffic patterns of the area? Do their ads accurately reflect their image?

Have you ever seen an ad and thought you were going to an upscale place only to discover, when you arrived, the place was a dump on some back street? What image comes to mind when you see your competitors ads? Where do they advertise? Are you in the same place?

Make a list of your competitors and plan to visit each one. Design a competitive analysis sheet with the principle points of comparison between you and each competitor. What are the strengths and weaknesses of each? What must you overcome and what can you take advantage of?

Do you belong to an association that does competitive analysis of businesses or industries? Most towns have an Association of Realtors. Sometimes the industry does comparisons between the major players.

If your competitors are large companies...buy stock. As a stock holder you will receive their annual and quarterly reports as well as updates on the future plans of the company.



How To Evaluate A Competitive Product

In a small town or neighborhood, it's tough to do too much detective work because everybody knows everybody. You can't go into a competitor and pretend to be a shopper. See if a friend from a nearby town would be willing to visit the store and pretend to be a shopper and do an evaluation on the store and staff. Some questions to find out are:

  • Are the sales staff professional and knowledgeable about the product?
  • What other similar products and services are offered?
  • What colors do they use in the store? Reds and yellows, for example, are "buy" colors. (See
  • McDonalds, Wendy's, and Burger King)
  • How is the product merchandised? Display? Shelf?
  • Do they offer promotional materials of the product? Shirts, hats, etc.
  • What was the quality of service?
  • What are their strengths? Weaknesses?
  • How To Evaluate A Competitive Service

Service companies are also tough to evaluate in a small town. You can't ask the competitive cleaning service to come out and clean your house. However, people do have a tendency to complain louder and longer about a service than they do with a product. A product is usually a small expense or you were trying it out for evaluation. If it doesn't perform it's not a big deal.

A service however, is another story. You usually negotiate face-to-face with someone and promises and assurances are made in advance of the service being performed. A level of trust is established. With a contract or agreement there is always a chance for deception. "It's right here in the fine print, that service costs extra." Sometimes the evaluation of the work is a gray area. The dry cleaner says it's clean and you say it isn't. See Customer Service: "Customer Phrases To Watch For."

Speaking of dry cleaners, a friend of mine once parked across the street from his competitor at six o'clock in the morning. He noticed several people who came by between 7:30 am and 8:00am to drop off cleaning. The problem was the competitor didn't open until 8:30 am. My friend immediately began advertising his new "convenient early drop off hours." He had found a weakness in the competition.

The best way to evaluate a service is pay attention to word-of-mouth. As mentioned above, people tend to complain louder and longer about a service. Pay attention.



Evaluation Leads to Uniqueness

The lesson we learned from my dry cleaner friend is, capitalizing on a weakness of your competitor can make your business unique. (See How To Make Your Business Unique) Have you ever seen a peanut butter commercial that just says it tastes good. No. Our peanut butter tastes more like "fresh roasted peanuts." "Choosy Mothers Choose Jif." Shampoos don't get hair clean they get it "cleaner" "more manageable" "fuller body", the list goes on and on.

The more you know about the strengths and weaknesses of the competition the more you can use that information to make your business unique and separate yourself from them.


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