3 Part Market Research Papers (Vol 2)
By Kelly Lusson
Volume 2
The Purpose of Market Analysis
Introduction and Recap
In this second article of a three-part series, I will provide my recommendations for conducting an in-depth market analysis, whether in-house or with the help of a professional. My goal is to equip your company with the necessary tools to turn data into information, which you can then use to gain a strategic advantage over your competitors. I’ve previously used the analogy of a puzzle to describe the process of gathering data from a variety of different sources in order to develop a clear picture of your relevant market (and related potential). I recommend organizing your research into three primary groups. I previously discussed beginning a market analysis with a high-level, top-down snapshot to validate your areas of focus (see link). In this article, I will discuss strategies for supplementing your data with a more bottom-up analysis of competitors, in order to better understand who your company is up against and develop a benchmark for your performance. In a third article, I will discuss formulating your “go-to-market” strategy, to identify new customer leads and determine your best approach.
Bottom-up Competitive Analysis
Purpose:
Why should we spend time and resources to learn about our competitors? First and foremost, a competitor overview will help to validate our findings from our high-level top-down industry snapshot. If we estimated our relevant market to be $100 mil., but our top three competitors have a combined revenue of $150 mil., we know that we’re still missing a few pieces of the puzzle. Additionally, our competitive analysis will give us the basis for developing a go-to-market strategy. For example, if we estimate that our current market share (as compared to our competitors) is only 5% of total, we need to come up with a good plan of attack in order to gain more customers. If we currently own 75% of our relevant market share, we better come up with a plan to defend ourselves against those who would seek a larger piece of the pie. The more information we have about our competitors, the better we can attempt to differentiate our product offering to our customers. We want to learn from their successes and failures, exploit their weaknesses, and set a baseline for our own performance.
Methodology:
We typically collect competitor information from a variety of sources. Obviously, public companies will have a large amount of information available in the form of SEC filings. For private companies, it is more difficult, but by no means impossible to obtain a broad overview. When conducting research on your private competitors, I suggest to focus less on revenue and more on whether the competitor is larger, smaller, or comparable to the size of your company. Sometimes we put on “blinders” when we can’t find the most obvious or relevant piece of data – back to my puzzle analogy. Just because your dog ate one of the corner pieces doesn’t mean you can’t create an overview of the big picture. For this research, I recommend looking into the following sources:
Public Company Reports: If your competitor is a publically traded company, you should be able to find all manner of revenue, employees, growth projections, profitability, etc. Pay close attention to the foot notes and read between the lines to see more of the story. Does your competitor plan to follow a merger/acquisition strategy to gain market share over the next 3-5 years? If so, is your company a potential target? Has the company been to trial for any lawsuits over the past few years? Is this information you could use to gain customers?
Subscription Databases: We currently subscribe to Hoovers, a subsidiary of Dun and Bradstreet. Hoovers has information on over 80 mil. companies, around 20 mil. of which are in North America. Hoovers numbers are not always accurate, but can provide a first touchstone for things like annual revenue and number of employees. While Hoovers will sometimes underestimate the size of a company, I find that it very rarely overestimates. Therefore, if the database shows one of your competitors at $12 mil. revenue, you can typically assume that the company is at least that size.
International Filing Requirements: For many countries (particularly those in the European Union), the government will require companies to file an annual report of finances. You may not be able to find specific revenue numbers, if the company is small, however you can often obtain a detailed balance sheet, including a breakdown of assets and liabilities. Again, this is useful (from a comparative perspective) to determine if the competitor is larger, smaller, or approximately the same size as your company.
Ask Your People: If you work in an industry where the competition is highly concentrated, there is a good chance that your employees have worked for your competitors. It’s amazing what information you can obtain if you just ask. Private companies are sometimes hesitant to share revenue information with employees, but you may be able to find out how many customers your competitor has, why they won or lost sales, or get a feel for average sales volume.
Ask Your Customers: Your customers are your best point of reference for who is actively selling in your market. When you lose an order, do you document the reason why you lost? If it was due to price, quality, lead times, etc., who was the ultimate winner of the sale and why?
Why don’t my numbers add up?
As you gather information about the competitors within your relevant market, you will inevitably begin to notice some holes in your picture. However, some information is always preferable to no information, and we must push forward (somewhat abstractly) to complete our picture. Let’s assume that in a previous step, we’ve completed our high-level, top-down industry snapshot, and we assume our relevant market potential for control valves in the chemical processing industry is around $100 mil. We have approximately 10% market share, and we have the following information about our competitors:
Competitor 1: ~$20 mil.
Competitor 2: ~$15 mil. (Rev. is $50 mil., but we assume that only ~1/3 of their business is relevant to our product)
Competitor 3: $30 mil. (public information)
If our first pass at a top-down analysis estimates the market at $100 mil., and we’re pretty confident in the source data, where is the remaining 25%? I recommend the following exercises to close the gaps in your market data:
Have we done an analysis of lost business to determine the reason for our loss? This is a top priority. If we’ve quoted $10 mil. that we didn’t win, do we know who won the orders that we lost? Let’s say that $5 mil. of what we quoted went to our top 3 competitors. What happened to the remaining $5 mil.? Perhaps there is a competitor (or several competitors) which we have not accounted for, and despite our best research efforts, we cannot find any meaningful data. In this case we need to gather as much information as we can, and file our assumptions under “other” for the time being.
Is an aftermarket for our industry throwing off our estimate? Our high-level, top-down industry snapshot may or may not include a certain percentage of product which is sold through service or maintenance. Perhaps some of our competitors only sell new products, and others only provide service to existing products. Are we accounting for all relevant competitors?
Are there products or services (outside of our specific product or service offering) which also meet the demands of our customers? A simplified example: if the customer needs to hang drywall, and we sell drills, is there a competitor who sells hammers? Additionally, changes in technology may render parts of our product or service offering obsolete. In this case, we would be remiss to limit our comparison to only the old players using the old technology.
Get Creative
Ever heard of counting cars? Here’s a secret of the trade: If you want to avoid looking like a creepy stalker (imagine, driving slowly through the parking lot of your competitor), use Google or Apple maps to get a bird’s eye view of cars, equipment, or facilities. If the satellite picture was taken after hours or on a weekend (empty parking lot), you can use street view to take a virtual walk around the building. To be really tricky, download Google Earth and look at a time line of satellite images. This way, you can see how much the company has changed over a 5-year period. Have they added buildings, trucks, or poured concrete for a new parking lot? You could even use this information to extrapolate by how much your competitor has grown in recent years. Again, the goal here may be just to determine whether the competitor is larger, smaller, or roughly the same size as your company.
In Summary
Competitor information should be collected and updated on a regular basis in order to maintain intelligence in your field. Your competitive intelligence should enable you to benchmark your performance against others in your field, and should provide a starting point for your go-to-market strategy. At the end of the day, your company should be growing at least as much as your competitors. We certainly don’t want to lose market share.
Depending on whether your market is concentrated or highly fragmented in terms of key players, competitive analysis can be very tedious and time consuming – particularly if the researcher doesn’t know where to begin. I find that many companies give up on gathering competitive intelligence when they can’t find any data related to annual revenue. Once again, revenue is just one small part of a big picture. This is where a professional firm can help to fill in some of the gaps.
In a final article, I will discuss developing a “go-to-market” strategy to identify customer leads and determine your best approach. Please contact me at kellylusson@amarkconsulting.com with any questions or comments.