What is direct and indirect competition in business?
Updated: Jan 7, 2022
Competition isn’t just for sports. It's something that exists across several fields, including psychology, biology, economics and businesses alike. And, while the term itself may have a negative connotation, (e.g. zero-sum game, win-lose) it’s actually an essential element for everyone - especially your business. It sparks motivation, innovation, and, in turn, improves your products/services and customer relationships for the long-run.
Henry Ford once said:
"Competition whose motive is merely to compete, to drive some other fellow out, never carries very far. The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time."
Whether you’re just starting out a new venture, or have a deeply rooted business, it is necessary to understand your competition - whether it’s direct or indirect competitors. Why? Your rivals include any business that might prevent a potential customer from choosing you. And what business doesn’t want to compete for that?
Understand your competition
As cliché as it sounds, no matter what product or service you offer, competition is inevitable. This is why understanding what the other key players on the field are up to is crucial to hold on to your current customers and progress forward. One of the cheapest, easiest and fastest ways to learn more about your competition is by researching about them on Google. You’ll be able to find customer testimonials, reviews, opinionated blog posts and other insightful content to help you grasp what they’re all about.
Pro tip: For a more thorough on-going study of your rivals, conduct a competitive analysis. While it’s not a one-time project, it’s extremely important to carry out this comprehensive research in order to understand where your business stands in the market landscape. This includes comparing price points, strengths, weaknesses and features relative to those of your own products or services.
One fundamental aspect of mapping your rivals is identifying the three different categories of competition: direct, indirect and secondary competitors. Here it’s important to know all types of businesses in order to be able to build a mental map when strategizing, ensuring you have that “it” factor in your industry.
Definition: Direct competition is when two or more businesses offer the same product or service and compete for the same market.
There are many common examples of this. One is McDonalds versus Burger King, or more specifically, the Big Mac is a strong rival to the Whopper. Another example is Apple’s iPhone versus Samsung’s Galaxy.
However, it’s not always that clear to distinguish who is and isn’t your competition. So, here are two simple techniques to help you identify direct competitors:
Customer feedback: Before your customers picked you as their brand of choice, they probably had a few other considerations in mind. With the assistance of your help desk software, you can begin to understand their preferences when you collect customer feedback. For existing customers, ask them which companies they were evaluating. For potential customers, ask them which businesses they are considering in order to shape your pitch and focus it on their needs.
Online communities: When it comes to social media, oh boy, do people love to speak their minds. Nowadays, if you’re looking for advice, head to brands’ social media pages and online forums like Tumblr, Quora and Reddit.
Definition: Secondary competition is when two or more businesses offer a different high-end or low-end version of your product or service to a similar market.
The following are some examples of secondary competitors. Gucci and Gap, both retail brands, target different markets: a high-end luxury-focused audience versus a practical, middle-class one. Then, there are video streaming providers like Netflix and YouTube: one you pay a subscription fee for premium content, the other lets you stream videos for free, but often at a cost of quality.
It’s quite often the case that when starting a business, it’s filled with a whirlwind of emotions. Yet, you quickly realize there are many boxes that you’ll need to tick in order to set yourself up on the right track: recruiting talented employees, building a successful social media marketing strategy, and so much more.
You start off by supporting clients via your personal Gmail account. But as you grow and expand, you may realize that it’s not scalable. The next step is to upgrade to something called a ‘help desk software,’ which has a full suite of tools to organize and streamline your customer support. Because of this, your single Gmail inbox and a ticketing system are seen as secondary competitors.
Definition: Indirect competition, also known as substitutes, is when two or more businesses offer different products or services and compete for the same market to satisfy the same customer need.
For example, house painters are indirect competitors of home improvement chains such as Ace Hardware or Home Depot because they offer products such as paint and rollers to get the job done yourself.
Here are two effective techniques for identifying indirect competitors:
Keyword research: Both Google and Bing search engines offer websites the chance of page one rankings in SERPs (search engine results page) for specific keywords, all based on the quality of your SEO efforts. While it may seem odd that companies fight over this ranking real estate, it really is no joke. Most of your potential customers are searching for specific keywords to find the right solution. Pro tip: Try out Google Keyword Planner to find how often these words are being searched. Or, SEMrush, an advanced SEO tool that will drill down into keywords and other SEO data for any site or URL. These techniques will up your chance of landing a high position in the SERPs of both of these search engines.
Writing SEO-friendly content: Many of your indirect competitors are writing authentic content (e.g. blog posts and dedicated landing pages) that are closely related to your product or service. Every page contains keywords - simple sounding, but a very powerful technique to help you get found on Google. Any of the businesses, bloggers or publications that writes about topics encompassing your brand are seen as indirect competitors.
In the end, indirect competition is what most of us face every day. “Will I get a salad or burger for lunch to satisfy my hunger?” or “will I choose to drive my car to work or take an Uber?” All customers have to do is simply have to make a choice, which is especially powerful for businesses to deconstruct and understand the reason behind these decisions.
Competitive brand positioning is a key marketing strategy used to define what actions your brand takes to harness a competitive edge. It is a powerful and complex concept to wrap your head around as it branches off in multiple directions. In the book Marketing Management, Philip Kolter and Kevin Lane Keller define this term as:
“The act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market.”
Simply put, it’s how your company differentiates itself from its rivals, and how customer perception is shaped by your brand.
Through rigorous market research, you’ll be able to understand who you’re competing against and how to understand your strengths and best position your brand to take the lead. Begin by constructing a statement that speaks about your brand identity.
There is no need to formulate this yourself. Brand leadership expert Denise Lee Yohn proposes a simple formula and exploratory questions for each variable:
we are the ‘A’ who does ‘B’
‘X’ = target audience: Who could be interested in your product or service? What makes them unique? Why are your offerings important for them?
‘A’ = brand position in the market: What is your brand’s position in the market? How do your existing and potential customers perceive your product or service?
‘B’ = the ‘it’ factor: What makes your brand different? Why should your target audience value you and not others?
‘C’ = show results: What proof do you have that shows you can deliver?
For example: Wix Answers help desk software makes it possible for businesses of all sizes to support their users (X). Wix Answers is a complete customer support suite that you can view and manage in just one tab (A). No matter how your customer contacts you, all of your support channels seamlessly tie together to create one timeline (B). A platform built in-house by Wix to support 150 million users worldwide, now available to businesses of all sizes (C).
Understanding your direct, secondary and indirect competitors and what product or services they offer (or don’t) will paint a better picture of who is competing for your customers. The more you know, the more you grow.