We focus a lot on building a product or experience that best solves your customers’ needs. But of course, you’re not operating in a vacuum where you alone are trying to address those needs. Unless you’re running a monopoly operation, there are probably other companies building products to get the same set of customers.

This is especially true in today’s SaaS environment where technology frameworks, templates, APIs, and more all help make it much easier to stand up a new product. A significant part of your job as PM is building something that outperforms and better meets users’ needs than your competition.

Of course, this is easier said than done! That’s why it’s essential to build a competitive analysis into your product development process. This analysis will help you figure out the strengths and weaknesses of your competitors’ products and inform your product decisions.

The goal here isn’t to copy your competitors. A lack of differentiation will just put you in a pricing war with your competitors, preventing your product from increasing business value.

How a competitive analysis improves your product

Since we’re talking about product development, we’ll focus on one specific type of competitive analysis—the product-differentiation competitive analysis.

By focusing on your competitors’ products, you’ll uncover the gaps between their products and what you believe to be the needs of your shared target customer base. Once you’ve done that, you can differentiate your product by taking a competitor’s gap and turning it into a feature that’s a strength for your product.

As an example, Zoom noticed their competitors’ products weren’t easy to use on different devices and often required users to download a piece of software. Based on those shortcomings, Zoom built a product that was easy to use on any device and didn’t need users to download anything. Those competitive advantages helped propel the company to one of the most successful IPOs of 2019.

Had Zoom not taken the time to analyze their competitors, they might’ve just ended up with another also-ran video conferencing tool that didn’t provide any unique or compelling value. A robust competitive analysis can help you follow in Zoom’s footsteps.

4 steps to conducting a product-differentiation competitive analysis

Like any competitive analysis, the product-differentiation competitive analysis takes time to complete. It’s not something you can do in a few hours. It’s an iterative process, and you’ll likely spend many hours over the next few weeks working on this.

That’s why we’ve broken this project into four steps.

Step 1: Identify your competitors

The first thing you need to do is figure out who your competitors are. This process isn’t as simple as just choosing the leaders in your industry or even choosing the companies whose products are the most similar to yours.

Those are both important, but you also need to consider indirect competitors that:

  • Solve a different problem for your customers but in a similar way.
  • Solve a similar problem for customers that aren’t in your category.

Myk Pono, a product growth specialist, explains this using Uber as an example:

  • Lyft is a direct competitor because they both solve the same problem for the same customer
  • DoorDash solves a different problem for the same customer
  • Zum solves a similar problem but for a different customer

You should find multiple direct competitors and then at least two indirect competitors.

Take all of those direct and indirect competitors and put them into one spreadsheet and categorize them accordingly. It’s also helpful to add some notes about each competitor.

Let’s say we’re building an Airbnb competitor. Our spreadsheet would look something like this:

Competitor Analysis Airbnb

Airbnb, along with Vrbo and HomeAway, are our direct competitors. Onefinestay targets a more upscale audience, and Turo is a car rental company that allows people to list their personal cars for rent.

Step 2: List & categorize all features

Now that you know your competitors, you need to identify their products’ features. To do this, review their websites, download their apps, take advantage of any free trials they offer, and use their products if they’re available.

Create separate tabs in your spreadsheet for each competitor and add all of their features in those tabs. Now, categorize each feature based on how unique it is. If your product has the same or a similar feature, classify it as “similar.” If the feature is unique to your competitor, classify it as “unique.”

Once you’ve done that, give each feature another category. This time, you’ll be categorizing each feature as a “strength” or “weakness.”

  • Strength: The feature is valuable to its users. Users may even pay extra for it.
  • Weakness: There are multiple reasons to classify it as a weakness. Either the feature doesn’t seem useful, or maybe it’s useful, but the execution is poor.

If we were evaluating Airbnb, our chart would look like this:

Competitive Analysis Airbnb

Repeat this process for all of the competitors you listed in step 1.

Step 3: Read user reviews

Next, you need to find user reviews for each competitor’s product. You can use sites like G2, Trustpilot, and Capterra to find reviews from users.

Hiten Shah recommends that you look for patterns when reading through user reviews. Pay attention to the things that create emotion. What features frustrate your competitor’s users? What do they love?

Each time you notice a pattern, make a note of it. Then go through the same process that you did in step 2 and categorize each product trend as similar or unique and its strength or weakness.

Step 4: Chart the features

The last step helps you evaluate what to do with this information. There are a variety of ways to do this, and you might consider what type of evaluation is best for your company.

One possible way is to take all of the features and plot them on an X-Y axis.

The X-axis is going to be Similar → Unique, and the Y-axis will be Weakness → Strength.

Take all of the features that you categorized in your spreadsheet and plot them on the chart. This helps you figure out what features will give you a competitive edge against your competitors.

Competitive Analysis Chart

Look at all the features that you’ve categorized as a similar weakness (bottom left). These are your starting points because you have a similar product feature as their weakness. If your similar feature is a strength of yours, good. You’ve found a competitive advantage.

If your similar feature isn’t a strength, that’s even better. You’ve found a place to start building a competitive advantage.

Repeat this process on the features you’ve categorized as unique, weakness. What makes them unique but weak? Is there a way you can develop a similar feature but execute it better? Spend time considering if this feature could be a strength for your product. Maybe it isn’t worth building at all. But if it is, it represents another way to differentiate your product.

In our eBook, Dan Olsen outlines how he approaches differentiation and uses Instagram as an example.

Once you’ve gone through this whole process, it’s time to move onto the next step in your product strategy: product prioritization.

Gain a product advantage with a competitive analysis

Competitive analysis identifies the gaps between your competitors’ products and their customers, who are likely your customers as well.

You’re not trying to create the same product as your competitors. You should be trying to create a product that solves the same problems for your users but in a much better way.

A product-differentiation competitive analysis will help you achieve that goal.

. . .

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Monty Mitra Oct 24, 2019