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Last updated on 5/11/20

Learn the importance of competitive analysis

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The product development sequence

Use the following product development sequence for optimal results:

  1. Identify a problem and a set of potential users who have this same problem.

  2. Conduct product research to learn more about the intricacies of the problem, as well as the solutions that already exist today and how they might be better implemented.

  3. Use carefully designed experiments to validate a potential solution while obtaining data that can give you some small-scale traction.

  4. Implement a full solution while working with the tech team to build the right set of features that delight customers.

This sequence is important because doing the activities in any given step without successfully completing the previous ones will reduce your chances of building a winning product. A winning product, of course, is one that customers love and helps the business reach its objectives.

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The product development sequence

During this course, we will examine what happens when the product manager or entrepreneur conducts product research to identify whether or not a problem is worth solving. Product research also needs to reveal which solution and business model gives the customer their desired outcomes while helping the business achieve its objectives.

The product research toolbox contains the following elements:

  1. Competitive analysis

  2. Customer interviews

  3. Business model design

Competitive analysis

Competitive analysis is the process of researching whom the competition is and which products/services they offer. Let's illustrate why it is so important.

Imagine that you have spoken to a few customers about what would make their life better and you have identified a solution that they are prepared to pay for. You then spend 12 months building an incredible product.

Now imagine you find out that the competition has an identical product (or better). This competitor has hundreds of employees, thousands of loyal clients, and tens of millions of dollars in the bank. You can't compete. The last 12 months of your life have been wasted on building a product that already exists because you didn't research the competition enough.

Let’s begin with some marketing fundamentals so that you understand the nature of competition in greater depth.

The marketing concept

A need is a state of deprivation; that is, a basic requirement that an individual wishes to satisfy. 

A want is a desire for a specific product or service to satisfy an underlying need (or needs).

The marketing concept holds that the key to achieving organizational goals consists in determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors.

Two product research activities

In the early stages of doing product research, you need to do two activities:

  1. Research the competition

  2. Validate which benefits customers value highly 

These activities can happen in either order:

  1. You notice some benefit or feature that competitors do not offer. Your next step would then be to make sure customers really value this benefit.

  2. From talking to customers, you know what benefit or feature they would really value if it existed. Before building any product or service, you need to check whether competitors currently have similar offerings.

Either way, thorough competitive analysis is required.

Jobs-to-be-done

Clayton Christensen of Harvard Business School describes products as something that customers "hire to help them to do a job." In the classic case study that featured a company trying to increase sales of their milkshakes, Christensen asked the question, "What jobs did those customers hire a milkshake to help them do?"

The answer is that half of the milkshakes were sold in the morning without any accompanying meal. The reason is that they were driving to work and wanted something that would help them keep from being hungry while giving them something to do while they drove to work or waited in traffic.

Other products that they had hired to do this job (of staving off hunger while keeping them from being bored while driving) were bananas, donuts, candy bars: products one would not necessarily think of as being competitors to milkshakes. They are called "indirect competitors." The most important thing is that you understand which "job" the customer is trying to do when they "hire" your product and consider which other products the customer could hire to do the same job.

It is important to focus on the needs and wants of the customer. As a product manager, it might be tempting to think about which "features" are the key to a successful product, but helping the customer achieve a desired outcome (helping them with the "job" they are trying to do) is more important than any feature you might build. Ted Levitt of Harvard Business School said it best when he said:

 “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!” 

Scope of competitors

It can be tempting to look at other companies who do something similar to your company when making a list of potential competitors to research. However, there are several types of competitor to consider:

  • Direct competitors (do the same job in the same way, e.g., Uber and Lyft are direct competitors)

  • Secondary competitors (do the same job in a different way, e.g., fitness machine purchase vs. gym membership)

  • Indirect competitors (do the same job but with different outcomes, e.g., McDonald's and Weight Watchers)

Three C's of marketing

A classic marketing model is the three C's:

  1. Customer

  2. Competitor

  3. Company

Successful marketing entails designing products and services that:

  1. Helps customers with their job-to-be-done.

  2. Delivers value in a way that is superior to the competition.

  3. Fits well with the company's capabilities and strengths.

Your goal in conducting product research is to find a proposed product or solution that customers love because it helps them do the jobs they are trying to do in a way that is better than what the competition offers. Once the solution has been discovered, product managers work with their engineering team to come up with a plan to deliver something that the team (and company) is capable of delivering that meets this promise.

When to do competitive analysis

Competitive analysis is appropriate when:

  • You haven't built anything yet, and you're checking if it's worthwhile before going to the next step in the sequence.

  • You have an existing product and want to investigate whether a potential new venture (or product expansion) is a good idea.

  • You have a successful product, but are worried about the competition.

  • You have an idea for business model innovation.

Links

Let's recap!

  • The product development sequence includes the following steps:

    1. Identification of a problem 

    2. Product research 

    3. Validation of a potential solution

    4. Implementation of the solution 

  • Product research includes the following steps:

    1. Competitive analysis

    2. Customer interviews to identify the jobs-to-be-done that customers 

    3. Business model design

  • Competitive analysis is the process of researching whom the competition is and which products/services they offer.

  • Interwoven with researching the competition is the task of validating which benefits customers value highly and the customers' jobs-to-be-done

Example of certificate of achievement
Example of certificate of achievement