An advantage that retail businesses have is that they can easily identify their competitors. Furthermore they can often walk right in to their competitor’s retail premises and conduct an analysis of their offer. When was the last time you investigated what your competitors are doing? Sometimes just a simple, quick inspection can uncover gaps in the market or changes in your competitors' businesses that you may not have anticipated.
During my career in retail marketing at Sydney-based shopping centres I worked closely with a retail butcher who sold premium-quality meats, located outside one of the highest performing supermarkets in Australia, serving approximately four million customers per year who each walked past the front of this particular butcher to enter the supermarket. The business owner could not understand why his sales had stopped growing when the quality of his products was superior, they had a new shop fitout and great customer service. Why then, weren't more of these four million potential customers purchasing his high quality meat?
It was time to stop looking within the store for problems and start looking for realistic, honest reasons as to why customers were not buying from this store. I took it upon myself to set out on a competitor analysis by driving around to the known shopping precincts in the area. I soon realised that there were more retail butchers in the local area than even I could have imagined! Within a 5 km radius there were more than 10 reputable butchers. One of these butchers was a wholesaler who supplied meat to restaurants throughout Sydney and also had a retail store. Three of the butchers were within 300 metres of each other so competed fiercely on price but were also forced to have quality meat to maintain their transient customer base. The other competing butchers were all similar in the standard of their shop fronts and fitouts, clean and fresh looking display of meats and staff service levels.
The one thing that was consistently different from my butcher to these other butchers was price. The price difference between the products offered by my butcher was massive. Some products were almost twice as expensive than any of the others. All of the other butchers had cuts of meat available for under $10/kg. The lowest price my butcher had for meat on display was $14.99/kg for sausages and the cuts of meat were close to, or well exceeding, $20/kg with items as high as $54/kg. It was obvious that customers were not willing to pay this inflated amount for similar products from similar butchers or, indeed, the supermarket.
On returning from my competitor analysis, I discussed the findings with my butcher and asked him how he had developed their pricing structure. He advised me that he had used the same pricing as his other retail butcher store in one of Sydney's most prestigious suburbs. The other butcher had a limited number of competitors and was positioned in an area where customers were obviously willing and able to spend more on their meat purchases. This area of Sydney also had more singles or dual occupancy households and relied heavily on foot or public transport, making them less mobile than the car-owning family markets found near his less successful butcher store.
The store I had been working with did have a customer base with a relatively high disposable income but due to the high quality competition in the area they were obviously less prepared to pay the high prices expected by my butcher. By recognising that their prices were too high my butcher was able to begin successfully competing within their newly identified market. They varied their product range to include lower cost items and less of the intimidatingly high-priced items that were turning customers away. They heavily advertised their new prices in store with immediate success. Their sales improved from a negative variance to an increasingly stronger position within just three months. This success could have eventuated sooner had they considered their competitors.
To assume that your retail business can continue to operate in the same way that it has always operated (in the same or different geographical area) is a big mistake! No business operates in a vacuum and can be affected by external influences at any time. Although it may be difficult to control or measure all of the external factors affecting your retail business, by doing a simple and regular competitor analysis enables you to gain a better understanding of the market and take control the areas of your business that you can influence. Why not start visiting your competitors today?
Author information:
Sarah has a strong background in the development and implementation of marketing and sales plans to maximise sales, brand awareness and return on investment—particularly within the retail sectors. Sarah has worked in major retail shopping centre environments where one of her key responsibilities was to identify struggling retailers, investigate their business practices and recommend strategies for improvement.
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