6 Types of Competitors to Benchmark With
Narrow brand selection leads to poor market understanding. Broadening the analysis leads to better decision making.
Tunnel Visioning
Every manager understands the benefits of benchmarking. But the larger the number of competitors we benchmark with, the higher the cost for the analysis.
Whether you are engaging with a consultancy firm, or defining the scope of an internal project, the choice usually ends up on the “usual suspects”.
This happens because fewer competitors mean a lower cost of data acquisition, more focused communications, and.. let’s admit it: less risk to upset senior management by putting in some brands they don’t want to be compared with.
This often leads to tunnel visioning. We benchmark with the same peers and don’t see the threat coming.
Regardless of the industry you operate in, there are just too many moving parts in the market to risk a tunnel vision.
The Big Picture
To overcome the risks of tunnel visioning, a brand should consider a wider range of competitors. The DataBoutique tool offers the full scope of brands operating in a given environment, so there’s no cost-issue in this case.
To keep communication clear we need a framework. When working with brands, the following approach proved successful: Divide and conquer.
1. The Aspiration
The “Aspiration” can be a single brand or a blank space between two brands. This defines where you are headed, and your vision. Updating it will keep the organization focused.
The Aspiration should be a very well-known, successful brand, with a known market strategy that serves as a beacon for your decision-making process. A very large brand like Gucci, Coca-cola, Nike, Chanel, Hermes, Tesla, Ferrari, or Nespresso will work. This has to be the whale.
Benchmarking versus the whale provides plenty of hints, on where the brand needs to work.
2. Direct Competitors
This is usually the pack of 5 to 10 brands that are considered usually. They are brands comparable in size, and price structure; They share the same distribution geographies, and retailers.
This is the actual race. Product mix and price architectures are probably already monitored very closely. Any gaps in price structure shall be looked at very carefully.
The number of these competitors varies with the industry. Any brand is very aware of who they are: They are the opponents they meet every day on the market.
3. Indirect Competitors
Ok, this seems tricky but should be. Indirect competitors are brands that have a different business model but still operate in your area. You both fight for the same market segment, but it is not their only (or even their core) product line.
It is important to differentiate this group from the “direct” competitors: Their product mix (in your category) and price architecture can differ because they have other revenue streams that make up for blank spaces.
They are and remain a threat, but when it comes to interpreting the gaps in product/price positioning, the interpretation needs to be different.
4. The New Kids
This is something brands often don’t like doing, but it can turn into a mistake. Not to hurt any senior management’s feelings, we usually create a separate cluster of 5-10 brands.
The goal is to detect as early as possible new brands moving in, and anticipate future trouble.
5. The Old Guard
You should look to brands that have done their time as well. Brands that are fading are interesting to look at for 2 reasons. Number One, they might re-invent themselves, and you don’t want to be caught off guard. Number Two, you don’t want to find out your brand is more similar to the old guard than it is to the direct competitors…
6. The Peripheral Vision
To complete the picture, look outside of the box. This is where 5 years ago the smartwatches were for the watch industry. This is where no one is looking at. This is where the real trouble comes from.
Nobody in the watch industry was paying attention to Apple in 2016, but Tim Cook was already using Rolex as the “aspirational benchmark” for all Apple Watch events. The “peripheral vision” cluster should have included Apple if your brand was anywhere in the watchmaking industry.
Conclusion
These 6 types of competitors require different attention. Not all of them need to be watched monthly when it comes to price positioning (which is what we do at Data Boutique).
Direct and Indirect competitors are by far the most important to look at. The others can have quarterly or even twice a year updates.