When I talk to a prospect who buys from the competition, I ask them why they think the company has a strong offering. We all do this at our company. We have a database where we enter all the responses of our prospects about our competitors. That way, we know what they are doing and what their strengths and weaknesses are. Sometimes we also find out we should be offering an add-on that we're not offering yet.

That's not such a bad idea.

You could be even more aggressive about this:

Most firms publish testimonials, so phone up the people that gave them testimonials and ask them why they choose this company. Learn from their answers, then structure your product and services around the key customer desires and highlight your strengths in contrast to your competitors weaknesses.

One of the simplest, most effective ways to gauge the strength of your competitors is to determine whether or not they're getting premium pricing. Those that are getting premium prices are the most adept at quantifying and communicating their value to their customers/prospects. They're also have a very clear picture of who their ideal customer is and readily say "No" to people who don't fit their profile. Those that aren't are merely white noise and don't merit your consideration.

BTW, headhoncho mentioned compete.com. Alexa shows a lot more detailed statistics than Compete.com. While Compete.com only breaks down a sites traffic relative to all the other traffic being tracked on Compete.com, Alexa tries to factor a sites traffic as a percentage of global traffic (including traffic outside of their own sample). Since Alexa is updated daily and the developers were trying to be more accurate to actual traffic (and not just trying to show relative traffic) we use Alexa as our primary comparison vehicle.

Our company takes an approach along the lines of Cassandra:

Our focus is to carve out our own niche that has no competition.
Eventually competitors will try to take over your niche, and you'll notice this when revenue growth slows. Ask your customers who your competition is and why they are beating you. No one knows better than them. Then make sure your service of products can stand up to the competition.

The trick is always trying to develop new niches, the competition will find it hard to keep up with that.

Our sales team shopped competitors monthly. Each visited 1 store; data was compiled on a chart and shared. The info helped us improve and gave our team confidence working with customers. If someone wanted to “shop around” we pulled out the sheet to show what competitors offered at the same price point. Most people don’t want to waste time shopping around – they just want to be sure they get a good deal. You can help customers make informed decisions without bad-mouthing a competitor.