Competitive Analysis

How a company stacks up against its competitors

Understanding how to evaluate whether a company has advantages over its competition
Modified

September 7, 2025

Category: Analysis & Research
Difficulty: Beginner

Definition

Looking at a company’s competitors to understand if the company has advantages that help it succeed and make money better than others in the same business.

Why Competitive Analysis Matters

The Basic Questions

  • Is this company better than its competitors?
  • What happens if competitors get stronger?
  • Can this company protect its profits from competition?
  • Is the competition getting tougher or easier?

What You’re Looking For

  • Competitive advantages: Things that make this company special
  • Market position: Is it a leader or follower?
  • Threats: What could hurt this company’s business?
  • Opportunities: How might it beat competitors?

Simple Competitive Analysis Steps

Step 1: Identify the Competition

Direct competitors: Companies doing the exact same thing - Example: McDonald’s vs. Burger King vs. Wendy’s

Indirect competitors: Companies solving the same problem differently
- Example: Netflix vs. movie theaters vs. video games (all compete for entertainment time)

Step 2: Compare Market Position

Market share: How much of the market does each company have? - Market leader: Usually has 30%+ market share - Strong player: Has 10-30% market share - Niche player: Has under 10% market share

Step 3: Look for Competitive Advantages

What makes a company better? - Lower costs: Can make products cheaper - Better quality: Customers prefer their products - Better service: Superior customer experience - Strong brand: People trust and prefer the name - Network effects: Gets better as more people use it (like Facebook)

Key Things to Compare

Financial Strength

Who makes more money? - Compare profit margins between competitors - Look at revenue growth rates - Check which has less debt - See who generates more cash

Customer Loyalty

Who do customers prefer? - Which brand has stronger customer loyalty? - Who has better customer reviews? - Which company customers rarely switch away from? - Who can raise prices without losing customers?

Innovation

Who’s building the future? - Which company spends more on research and development? - Who introduces new products first? - Which has better technology? - Who adapts faster to change?

Warning Signs (Red Flags)

Company Being Analyzed

  • Losing market share: Competitors taking customers away
  • Lower profit margins: Making less money per sale than competitors
  • Slower growth: Growing slower than industry average
  • Old technology: Using outdated systems or products

Industry/Market

  • Too much competition: Too many companies fighting for same customers
  • Price wars: Everyone cutting prices to win customers (bad for profits)
  • New threats: Big tech companies or startups entering the market
  • Declining market: Whole industry shrinking (like newspaper industry)

Good Signs (Green Flags)

Company Advantages

  • Growing market share: Taking customers from competitors
  • Higher profit margins: Making more money per sale than others
  • Strong brand recognition: Customers specifically ask for this company
  • Unique products: Offering something competitors can’t easily copy

Market Position

  • Dominant leader: Much larger than next competitor
  • High switching costs: Hard/expensive for customers to switch to competitor
  • Growing market: Whole industry is expanding
  • High barriers to entry: Hard for new competitors to enter

Simple Competitive Analysis Framework

The Big Questions

  1. Who are the main competitors?
  2. What’s each company’s market share?
  3. What advantages does each company have?
  4. Which company is growing fastest?
  5. Which makes the most profit per sale?
  6. What threats do they face?

Quick Comparison Method

Create a simple table comparing:

  • Market share
  • Revenue growth
  • Profit margins
  • Main advantages
  • Main weaknesses

Real-World Example: Smartphone Market

Players and Market Share (simplified)

  • Apple: ~25% market share, premium brand
  • Samsung: ~20% market share, wide range of phones
  • Chinese brands: ~40% combined, value pricing

Competitive Advantages

Apple:

  • Premium brand, loyal customers
  • High profit margins
  • Integrated ecosystem (iPhone, iPad, Mac)

Samsung:

  • Broad product range
  • Advanced technology (displays, chips)
  • Global manufacturing

Investment Implications

  • Apple can charge higher prices (good for profits)
  • Samsung faces more price competition
  • Chinese brands compete mainly on price (lower margins)

For Different Types of Analysis

Quick Screen (10 minutes)

  • Who are top 3-5 competitors?
  • Which has highest market share?
  • Which is growing fastest?
  • Any obvious advantages/disadvantages?

Deeper Analysis (1-2 hours)

  • Compare financial metrics (growth, margins, returns)
  • Research competitive advantages and moats
  • Analyze industry trends and threats
  • Look at innovation and R&D spending

Investment Decision Framework

Strong Competitive Position (Buy signals)

  • Clear market leadership or strong #2 position
  • Sustainable competitive advantages
  • Growing market share
  • Higher profit margins than competitors

Weak Competitive Position (Avoid/Sell signals)

  • Losing market share consistently
  • No clear competitive advantages
  • Lower margins than competitors
  • Facing new, strong competitors

External Resources