Ranking. Most of your important competitors are likely to be at the top of the search engine rankings for your main keywords. Make a list of these companies and the keywords they rank best for. Start by listing the 10 to 20 companies that seem come up consistently on page 1 of the search results.
Pay Per Click Ads. List the companies that tend to show up on the PPC ads for your keywords. They may be fierce competitors, but don't have effective organic SEO.
Traffic. Now pare down your list by looking at the traffic going to your competitors. There are two great tools that can help you do this. Both draw their data from actual users. Compete (compete.com) allows you to profile traffic to a site over time so you can see traffic trends. The free version of the tool allows you to estimate monthly traffic and an overall ranking compared to all sites. The pro version ($200 to 300/month) can give you estimates of page views, time of average stay, pages per visit, etc., while the pro advanced version ($500/month) can tell you the gender, average age, and income level of visitors.
Alexa (alexa.com) has been around for a long time. It's free and shows you competitors in your space with their overall Alexa traffic rank, incoming links, and a graph of daily reach.
Use these tools to identify your top 5 to 10 major competitors. If these are all big companies, then you may need to narrow your niche some, so that you're not trying to compete head-to-head with the big boys.
You need to realize, however, that a lot of traffic by itself doesn't guarantee profitability. Not just the big guys make a profit -- and some of them are struggling. The Internet marketplace is large enough to find little niches that are quite profitable, even though the space seems dominated by a few big players.
Once you've developed a short list of your major competitors, you need to study them carefully. The first question you need to answer is: Why is this competitor on top? For now, ignore that they probably have effective search engine optimization (SEO) and a wise pay per click (PPC) advertising strategy. Rather, look at what each competitor offers customers on its website. How does it present itself and its offerings?
You'll need to develop and then refine a list of categories that you're comparing from site to site. Each niche will have its own points of comparison, but here are some to start with:
Look and feel. What's your first impression overall? Is the website visually attractive? Does it look professional?
Navigation. Is the site easy to navigate? What kinds of navigation tools do they offer? Look for tabs, menus, search features, ways to narrow down the search results, gift lists, etc. One reason they're on top is because they're probably doing several things right.
Personality. What is the personality of the site? Do they have a clever logo, perhaps a picture of a spokesperson or a mascot? Is it a blah site or does it have character? How do they differentiate themselves from other sites. Is the language formal or casual?
Demographic target. What kind of customers are they trying to attract? Newbies? Sophisticated users? What age group is their marketing aimed at? Are they trying to be "hip" or do they care? You can tell a lot by the graphics and the vocabulary they use.
Company story. Look at the "about us" pages. Read the company's story about who they are and why they're in business. How do they present themselves here?
Products and services. How do they display their products or services? Do they give stock product photos and standard descriptions received through an automatic feed from the manufacturer, or have they gone to the trouble to add value with better photos and deeper descriptions, product guides, shopping tips, recommendations, etc.? If price weren't a factor, how do they make you want to buy from them in particular? Why?
Pricing. How does this competitor price its products and services? Does it compete for lowest price? Or is it offering customer service and more information that will attract buyers who want to get the best product and support, rather than just get the cheapest price? Does it offer bundled pricing of related products that make sales more attractive? Are its prices cheapest, medium, or most expensive? Realize that your wholesale pricing will depend upon whether you can buy enough product to get volume pricing from the manufacturer or distributor. Your wholesale price for the product will also depend upon whether you purchase for inventory that you ship or do drop-shipping.
Customer service. How easy is it to contact someone if your have a question? Does this company try to avoid anyone calling them and getting a real person? What kinds of return policies do they offer? Shipping prices? Guarantees?
Checkout system. Study their shopping cart or ordering system, if they're an e-commerce site. If you're serious about learning, purchase a small product and watch how you put an item in their shopping cart and move to the final purchase. Many stores are pretty sloppy here and may not even realize it.
In the process of closely examining a number of sites, you'll begin to discover how some are better than others. Hopefully, you'll begin to see some "holes" in the way your competitors are doing business. You may recognize some unreached target audiences, some stupidity in the products offered or the presentation. You will start to get a feel -- I hope -- of how you could do some things better than they do. This insight is key to helping you shape your own unique online business.
Marketing is complex, so I'll oversimplify a bit. Smaller online businesses typically have four types of marketing you can look for. Study these:
Search engine optimization. How do they rank for keywords important to you? Without quite a bit of experience, you probably won't understand why they're ranked high, but an SEO professional might consult with you for an hour or two to give you an idea about the techniques your competitors are using. A lot of their ranking is because of the types of links to them from other sites and the number of "quality" links. There are tools available that can help you study their linking patterns. You'll need to learn how to match them at optimizing your pages and getting links if you want to match their traffic.
PPC text ads. Most successful small online businesses have learned how to pull highly targeted traffic in their field from the text ads that appear to the right of the search results -- as well as ads on key information sites in your field. For example, if you're selling HO gauge train models, look for your competitors' ads on the most popular model train blogs. Use the Google AdWords Keyword Tool to estimate what your competitors are paying per click for their ads. Are they seeking the #1 position or are they targeting the #3 or #6 position most of the time? If they're savvy, their usual position is part of their marketing strategy, not just a sign of how high they can afford to bid.
Social media. Increasingly, small businesses are learning to use Facebook, Twitter, and YouTube to increase their visibility. Study what they seem to be doing that is clever and/or effective.
Branding. "Branding" is a technical term that refers to how a company presents itself -- both in its messaging, website design, tag lines, logos, spokespersons, display advertising, and PR. Brand image is not just one thing, but the whole package. In a few moments I'll explain the concept of a Unique Selling Proposition (USP). Go to each of your competitors and try to write out what you believe their USP might be. It may be pretty obvious, since you've been paying attention. If it's not, then see its lack of sophistication as a competitive advantage for you.
The kind of study I've outlined here takes time to conduct. If you're working full-time, then you'll need to devote several weeks of your evenings to this project. The more you study your competitors, the more sophisticated you'll become. You'll not only understand your competitor's strengths and marketing strategies, but you'll also begin to see their weaknesses -- places that you can do better and show your customers that you are the best choice.
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