How do you know just how well you stack up against all those other businesses out there vying for your customers' money? With a well-conducted competitive marketing analysis that allows you to pinpoint your top competitors and learn from their strengths and weaknesses.

Spend some time drafting a thorough competitive analysis report that you can share with your employees, partners and investors, and use it to make strategic business decisions that will set you apart from the competition. Follow these steps:

1. Create a List of Direct Competitors

The research can be exhausting, and not every business that sells similar products or services to yours should make the list. You want to focus on the top 5 or 10 businesses that directly compete with you. For example, if you own a small clothes boutique, your top competitors are other boutiques and high-end clothing stores in your town. This may not include all online clothing boutiques or every store that sells clothes near your location.

Remember, your competitors will be companies that sell similar products or services to the same clientele as you do. To put it in another way, a competitor will be where a potential customer will go if he or she did not come to you.

2. Draft Product/Service Summaries

During this step, you'll review your competitors’ marketing copy, promotions and website content to learn as much as you can about their products or services. If you and your competitors offer a range of products or services, you may want to initially focus on comparing just one or two of your products or services to streamline the research, perhaps focusing on your best-selling product or on a product that is struggling.

Draft a detailed description of your product, including all of the features and benefits. Then write detailed descriptions of each competitor's product or service. Be specific during this step, so that in the next step you can draw conclusions about how their product or service differs from yours.

3. Indicate the Competitors’ Strengths and Weaknesses

This is probably your most important step, because a thorough comparison will allow you to reveal areas in which you are stronger and weaker than your competition. You can incorporate those insights during marketing and sales efforts. In addition, as you learn about areas where competitors are stronger than you, you can make changes to improve your weaknesses.

It's not always easy to determine strengths and weaknesses without actually getting your hands on a product or using a service. If you have the budget to purchase their goods so that you can get a feel for their functionality, quality and ease-of-use, do it. There is no better way to understand the competition than to have hands-on experiences with their products or services.

If that isn't a possibility, you can still learn a great deal about competitors via online research. First, you can compare their specifications from their product summaries with your own to create a list of features or benefits they offer that you don't, and vice versa.

Also, while online product pages can be tainted by fake reviews, there are other areas online where you can glean consumer opinion. Reading through the comments on social media sites, Angie's List, ConsumerSearch.com, Amazon, the Better Business Bureau and other online sources can provide you with great feedback on how your competitors conduct business and the quality of their goods.

4. Note Unique Strategies Competitors Use

What promotions or discounts do they offer? Do they use particular language or images that strike you as bold, appealing or even risqué? Also review their business and pricing strategy to see how it compares to yours. You'll likely uncover new ways to promote and incentivize your products or services that you can adapt and test on your own customers.

5. Figure Out the Market

If you are privy to your competitors' total revenue, you can calculate their market share. Publicly traded companies make that information readily available; others don't. You can also calculate your own market share, which is as important as knowing your competitors'. Simply take the total amount of the business' annual revenue before any expenses have been deducted, and divide it by your industry's total market sales. You can find your industry's total market sales through industry trade associations or a certified research firm.

Next, go a step further and analyze the entire market. Is it growing or shrinking? Are new competitors coming in? Are the barriers to entry going up or coming down? Once you have done this, look at how you and your competition fit into this landscape. If you look at the company with the largest market share, think about how they achieved this goal and, more importantly, how they are positioned to continue to succeed.

Conclusion

A great competitive analysis is not just a simple paper report. It takes an honest and objective point of view in order to look at what others do well and how you and your business fit into the entire market. Successful business leaders know more than just how to create an effective competitive analysis; they know how to use it to find and leverage opportunities.