A guide to competitive benchmarking

Competitive benchmarking is a critical practice in modern business, as it allows companies to assess their performance relative to their competitors and identify areas where they can improve. This process involves analyzing various metrics, including market share, revenue growth, profitability, customer satisfaction, product quality, and pricing.

One example of competitive benchmarking is the rivalry between two major smartphone manufacturers, Apple and Samsung. According to a report by Statista, as of the second quarter of 2022, Apple held 18.8% of the global smartphone market share, while Samsung had 21.6%. 

By comparing their product offerings, marketing strategies, and sales performance, both companies can stay competitive and adapt to changing market trends.

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Competitive benchmarking is comparing your business, product, or service to your competitors to determine strengths, weaknesses, and opportunities for improvement. 

Through competitive benchmarking, businesses can analyze industry best practices and market trends and make informed decisions based on data-driven insights. This process can enable companies to stay competitive and adapt to changing market conditions.

There are two different types of competitive benchmarking, including:

• Internal benchmarking – a company compares its performance across various departments or divisions. 

• External benchmarking – a business differentiates its administration from its competitors in the industry.

Companies can benchmark various metrics, such as sales figures, market share, customer satisfaction, pricing, and product quality. Analyzing this data gives you valuable insights into your business performance relative to your competitors and what you can do to improve.

Benchmarking allows companies to learn from the best practices of others and adopt them to improve their operations. Continuously benchmarking your performance will enable you to improve your business so you can maintain a competitive edge and thrive in today's fast-paced business environment.

Below are some benefits your business can experience due to competitive benchmarking.

1. Gain an objective view of your organization

When conducting competitive benchmarking, you gather data and information about your competitors' products, services, and practices and compare them to yours. This strategy allows you to identify areas where you may lag behind or not perform as well as your competitors. 

For example, if your organization is performing poorly in customer service, but your competitors are known for their exceptional customer service, this can be a red flag you should address. This practice can help you streamline your operations, leading to better performance, increased efficiency, and more success. 

2. Increase sales and revenue

One goal of any business is to increase sales and revenue, and competitive advantage is a way to achieve this goal. You can achieve this by differentiating your products, services, or practices from your competitors and offering unique value to your customers.

You can achieve a competitive advantage through product innovation, superior customer service, cost leadership, and efficient supply chain management. Focusing on these areas and continuously improving them allows your organization to stand out in the market and attract more customers.

As a result, it can increase your organization's sales and revenue, allowing it to maintain higher profit margins, as customers are willing to pay more for the added value they receive. 

3. Keep track of competitors

There are several ways to keep track of your competitors, such as conducting market research, attending industry events, and using social media and other online tools. By monitoring your competitors, you can gather information and insights about their products, services, marketing strategies, and pricing. You can then pinpoint your weak areas and make changes.

For example, suppose a new competitor enters the market with a disruptive product or service. In that case, you can analyze their approach and make strategic decisions to minimize the impact on your business.

4. Stay on top of emerging trends

Competitive benchmarking can help you establish new and innovative practices, products, or services worth adopting. This practice can enable you to stay relevant and competitive in a rapidly changing market.

If your competitors are using a new marketing strategy, you can evaluate its effectiveness and consider implementing it in your marketing efforts. Staying on top of new and emerging trends ensures your organization is not left behind and can remain competitive.

5. React more quickly to market shifts

Reacting quickly to market shifts is essential for the success of any organization. Market shifts can occur due to changes in customer preferences, new technologies, and economic changes. Organizations can remain competitive and seize new opportunities by reacting quickly and effectively to these shifts.

Monitoring your competitors and other leading organizations in the industry allows you to stay up-to-date on new trends and changes in the market. It can also keep you updated on potential opportunities or threats and enable you to adjust your plans accordingly.  With a culture of agility and adaptability, your organization can quickly adapt to market shifts and take advantage of new opportunities.

6. Improve the overall company culture

Enhancing company culture can have various benefits, including increased employee engagement, higher job satisfaction, improved productivity, and better business results.

Competitive benchmarking can play a crucial role in boosting the company culture by providing insights into best practices and innovative approaches used by leading organizations in the industry.

For example, suppose you notice other companies strongly emphasize work-life balance or employee development. In that case, you can evaluate your policies and practices and consider making changes to better align with industry standards.

7. Spur new ideas and innovation

Competitive benchmarking allows your organization to compare to others in the industry, allowing you to analyze new and innovative practices, processes, or strategies that you can adapt or implement within your organization. 

In addition, competitive benchmarking can allow you to deduce emerging trends or technologies in the industry. Keeping up with the latest trends and technologies enables you to develop new ideas and innovative solutions to drive business success. 

For example, if a leading organization is using artificial intelligence to improve customer service, you can explore AI within your organization to enhance customer experiences and streamline operations.

8. Avoid becoming obsolete

In today's rapidly changing business environment, organizations must stay ahead of the competition to stay relevant. Competitive benchmarking can be a valuable tool for helping organizations remain relevant.

Competitive benchmarking can allow you to confirm areas where you’re dragging behind. Analyze the practices and strategies used by leading organizations in the industry to determine areas where you can improve to stay ahead. This approach can enable you to avoid becoming obsolete by constantly improving and evolving to meet changing customer needs and market conditions.

Selecting the right competitors to benchmark against is critical for getting the most value from competitive benchmarking. Here are some tips to help you choose the right competitors to benchmark against:

• Begin by identifying your direct competitors—those who offer similar products or services to your own. These competitors will likely have the most relevant insights into your business and can provide valuable data into the industry standards.

• While direct competitors are vital, find competitors offering different services in the same industry. For example, consider benchmarking against vacation rentals or Airbnb if you’re in the hotel industry.

• When choosing competitors to benchmark against, consider their size and market share. Benchmarking against larger competitors can provide insights into their successful practices but may not be feasible for smaller organizations and vice versa.

• Consider the location of your competitors, as they may have different practices or strategies based on their practice area. For example, competitors in a foreign country may have contrasting labor laws or regulations affecting their operations.

• Benchmark against industry leaders as they can provide valuable insights into emerging trends, best practices, and innovative strategies.

Leveraging these insights enables you to improve operations, stay ahead of the competition, and drive business success. Therefore, careful consideration and selection of competitors to benchmark against is an essential step in ensuring the effectiveness and success of competitive benchmarking.

Competitive benchmarking analysis can allow you to find areas where you excel and areas you should improve to stay competitive. Here are some steps to perform a competitive benchmarking analysis:

1. Define clear goals and objectives

It's crucial to understand what you want to achieve through the analysis. This knowledge will allow you to focus on areas impacting your organization's performance the most.

When setting your goals and objectives, be specific and measurable. Define the metrics you’ll use to assess your performance and compare it with your competitors. It could include customer satisfaction, sales growth, market share, employee turnover, and profitability. Having clear and measurable goals will enable you to track your progress and adjust your strategies as needed.

2. Make a list of your competitors

Listing your competitors can help you determine who you’re competing against and offers insights into their strategies, strengths, and weaknesses.

To make a list of your competitors, start by researching your industry. This could include reviewing industry reports, market research, and trade publications. Look for companies offering similar products or services, targeting the same customer base, or operating in the same geographical region.

You can also use online resources like social media and search engines to identify your competitors. Look for companies that appear in search results for your target keywords or have a strong online presence. This list will serve as the basis for your benchmarking analysis and allow you to develop strategies to stay competitive.

3. Establish benchmarking metrics

Benchmarking allows you to establish the key performance indicators (KPIs) you’ll use to measure your performance against your competitors. It will help you make out the most relevant metrics to your goals. 

Begin with defining the objectives of your benchmarking analysis. Once you’ve defined your objectives, identify the most relevant metrics to your business and industry. For example, if your goal is to increase market share, you should focus on metrics such as customer acquisition or retention rates. Other metrics include customer satisfaction, sales growth, market share, employee turnover, and profitability.

4. Collect benchmarking data

The process involves gathering information about your performance and competitors' performance on key metrics. Define your data sources to determine internal data sources such as financial reports, customer feedback, employee performance data, and external data sources like market research and industry reports.

After collecting the data, analyze it to find trends and patterns. Look for areas where competitors outperform you and learn potential strategies to improve your performance. 

Develop an action plan to improve your performance on key metrics based on your analysis. This could involve developing new products or services, enhancing your marketing strategies, or implementing new processes to improve efficiency.

5. Analyze your results

Start by reviewing your benchmarking data and learning your strengths and weaknesses relative to your competitors. It will help you to understand where you’re performing well and where you’re underperforming.

Based on your analysis, set goals for improvement in areas where you’re underperforming. Make sure your goals are specific, measurable, achievable, relevant, and time-bound (SMART). Monitor your progress regularly and make adjustments to your action plan. It will enable you to stay on track and ensure you’re making progress toward your goals.

6. Refine and repeat

Develop a new action plan based on your new goals. Review your action plan and find areas where you’ve made progress and areas where you need to improve and make necessary adjustments. It should include strategies to build on your strengths and address areas where you’re underperforming.

Refining and repeating your competitive benchmarking analysis can enable you to stay updated on the latest trends in your industry and ensure you remain competitive. This strategy will help you to discover new opportunities for growth and improvement and to develop strategies to achieve your goals.

Competitor analysis involves gathering and analyzing data on competitors' strengths and weaknesses. Competitor benchmarking compares a company's performance to that of its competitors.

Benefits of benchmarking include:

• Identifying best practices and areas for improvement

• Encouraging innovation

• Enhancing competitiveness

Disadvantages of competitive benchmarking include:

• Benchmarking may not always apply to all industries or situations.

• It may lead to a focus on short-term goals rather than a long-term strategy.

• Results may be skewed if you don't conduct the comparison objectively or if the data used is inaccurate or incomplete.

Companies use benchmarking to compare their performance, strategies, and processes to those of their competitors or industry leaders. Benchmarking allows companies to identify areas for improvement and best practices that they can adopt to increase their competitiveness.