Any business entity that proceeds without information about its competition is proceeding foolishly, no matter what data it has about consumers. There are different scenarios, of course, that drive the inquiry. For example, is the business an existing entity, a new business, or a business with a new product?
For any business, though, one needs to know who the competitors are, where they are, their means of distribution, their pricing, their market share, their product line, the quality of their products, and what their target market is. What are their marketing strategies? Do the competitors participate in community affairs or have some special social responsibility campaigns? Are they environmentally conscientious? What is the quality of their respective websites or presence in social media?
This helps a business in many ways. This allows the business to know whom it is facing as competition, which allows the business to make better decisions about how to compete. Should the business focus on price differentiation, to offer a lower price and take some of the market share? Should the business focus on product differentiation, marketing that it has built a better mousetrap? The business might try to go after some of the existing market or choose to focus on a new niche altogether. The business might also decide to focus on marketing its more efficient distribution, for example, next day delivery that the competition cannot provide, more stores in more neighborhoods, or a more user-friendly website. The business might decide that its competitors' product lines lack something that this business can provide, a consumer need unfulfilled. The business might see a marketing advantage in social and/or environmental responsibility and perceive a social networking vacuum on the part of its competition.
In today's world, it is not enough to offer a good product or service and simply put a price on it. All of the factors above are means of ascertaining how to best compete, and without this information, a business is acting on a wish and a prayer.
To look at a corporation for example, we use competitive analysis to analyze the different perspectives. This can be useful in predicting the outcomes in deals, a new takeover, spin off or M&A activity. A competitive analysis looks further into the companies competitors and allows for a different angle to be examined.