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GuidesMarket researchFind your competitors: direct vs. indirect competition

Find your competitors: direct vs. indirect competition

Last updated

1 April 2024

Author

Dovetail Editorial Team

Reviewed by

Cathy Heath

Knowing who your competitors are is healthy and critical to your success as a business. When you understand your competition, you can develop effective marketing and business strategies that give you a competitive edge.

However, not all business competitors are equal. Some competitors are direct because they offer the same product or service as you. Others are indirect, offering a substitute or complementary product or service.

Understanding which competitor types you have allows you to discover their impact on your business, identify how you can stay ahead of the game, and take action to protect your business.

Discover how to identify competitors and how competitor research can help you maintain the lead.

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What are direct competitors?

Direct competitors are companies offering the same products or services as you. These companies sell to the same types of clients (target audience) and markets.

For example, if you own a coffee shop, your direct competitors are coffee shops in your area with coffee as their main product.

Examples of direct competitors

McDonald’s and Burger King are direct competitors, but this concept doesn’t just apply to the big industry giants. Every business, no matter how small, has competitors. A local bookstore will have other bookstores in the area as direct competitors.

Also, direct competition isn’t just for brick-and-mortar stores. It also applies to companies in the digital space. A good example is the direct competition between Netflix and Hulu. Both offer content streaming and compete for customers based on their streaming selections, pricing, and user experience.

Below are more examples of direct competitors to give you a better idea:

  • United Airlines and Delta Airlines

  • Nike and Adidas

  • Zoom and Microsoft Teams

  • Apple (iPhone) and Samsung (Galaxy)

  • Google and Bing

  • Uber and Lyft

  • Amazon and Walmart

What are indirect competitors?

Indirect competitors are businesses with different products or services that target the same client needs as your business. In other words, your product might be different from your competitors, but they fulfill the same need. So, even if the competition is indirect, you’re at risk of losing customers to your competitor.

Let’s go back to the coffee shop example. In this case, your indirect competitors could be fast-food restaurants and cafes that offer beverages.

People mainly drink coffee for refreshments and to boost energy levels. Even if you don’t sell the same products as your indirect competitors, you are still competing for customers. They might choose a competitor’s hot beverage over yours or perhaps opt for an ice-cold soda instead of a coffee.

Examples of indirect competitors

Netflix and cable TV are indirect competitors. Although both offer video content, Netflix is a streaming service, while cable TV is a traditional broadcast service. Since they both offer entertainment options, they compete indirectly.

Indirect competitors can also be classified based on their price points. For instance, although Starbucks and Dunkin’ Donuts offer coffee and breakfast meals, they target different customer segments. Starbucks is more upscale and offers a premium coffee experience, while Dunkin’ Donuts has more affordable options.

Below are more examples of direct competitors:

  • Online learning platforms (like Udemy) and traditional learning institutions (universities)

  • Uber and public transport

  • Online shopping platforms and brick-and-mortar stores

  • Ride-sharing services and car rental companies

  • Meal kit delivery services and grocery stores

Direct vs. indirect competition

Direct competition refers to two or more businesses offering the same products or services to the same target market. On the other hand, indirect competition occurs when another business offers a different product that could substitute your product and satisfy your customers’ needs and goals.

Direct competitors

Indirect competitors

Sell the same products and services

Sell different products and services that can act as a substitute for your product

Products compete on features, pricing, and quality

Products compete on convenience, availability, and brand recognition, and prices may vary significantly

Same ideal customer in a target market

Meet the same needs and goals

Examples: Pepsi and Coca-Cola, McDonald’s and Burger King

Examples: Coca-Cola and Starbucks, online learning platforms and traditional learning institutions

What to analyze and monitor during competitor research

Here are some of the things you need to analyze and monitor when carrying out competitor research:

  • Products and services—existing and future

  • Target market

  • Pricing strategy

  • Marketing and promotion strategies

  • Market share

  • Business model and revenue streams

  • Intellectual property

  • Partnerships

  • Distribution channels

  • Customer service and employee experience

  • Customer reviews

  • Changing customer preferences

  • Effect of new technology

  • Regulation and legal change

  • Governance

  • Major weaknesses and strengths

  • Online presence across search engine results pages (SERPs) and social media

Why is understanding competition crucial for business?

Understanding your competitors helps you uncover opportunities to serve your customers better. More importantly, identifying and understanding your business competitors enables you to learn, adapt, and develop products and messaging that work for customers.

Here are some other benefits you can expect:

Identify gaps in the market

Knowing your competitors also means knowing which products or services they offer and the price point of each. With this information, you can find and capitalize on unmet customer needs.

For instance, let’s say you and your competitors sell software. During your research, you discover that most of your competitors’ resources and features serve experienced users. You can use this information to develop features and resources for beginner and intermediate users. This will earn you more customers, build brand loyalty, and meet the needs of an underserved audience.

Create better marketing strategies

Monitoring your competitors’ marketing strategies enables you to adjust your own marketing efforts to better fit customer expectations. For example, competitor research will tell you which marketing strategies work for your competitors. You can replicate the same strategies or make them even better to help push your brand forward.

Identify potential partnerships

Competitor research isn’t all about stealing your competitors’ thunder. It can also help you identify valuable collaborations and partnerships that could elevate your brands.

One example of this in play is the collaboration between Sony and Samsung. In 2004, the two brands collaborated on building LCD panels for flat-screen televisions. The collaboration resulted in new products for each brand, a larger market share, and a great win against competitors.

Learn, reflect, and improve

This applies mostly when dealing with direct competition since you operate in the same industry, target the same customer, and sell similar products. Your company can learn a great deal from the failures and successes of your direct competitors. For instance, you can analyze their SEO strategies to see what works for your target audience and what doesn’t.

You could also check reviews to understand which features customers appreciate most. This way, you can improve your SEO practices or product features without wasting time and money.

However, it’s best not to hinge your entire business on this “monitor and learn” strategy. The most successful businesses know when to take the lead with experimental and innovative ideas.

Stay ahead of the competition

The best and quickest way to beat the competition is to ensure you’re always 10 miles ahead. Competitor research reveals what competitors are up to so you can refine and improve your strategies.

It’s not really about copying and pasting from your competitors. Rather, it’s about building something better and more effective for customers using best practices that you have observed or designed.

For example, if customers complain about a competitor’s customer service, make an effort to make your services superb. This will help you attract and retain more customers.

How to find your competitors

Finding competitors is easy when you know where and how to look. Here are five processes and platforms to help you identify and understand your competition.

Market research

Market research doesn’t just uncover market trends or segments. It also tells you which direct and indirect competitors operate in those segments. Use social media, business profiles on directories, and online surveys to discover your competitors.

Customer surveys and feedback

Listen to what your clients are saying about other businesses in your industry. This can help you identify competitors you may not have been aware of.

For example, in your feedback surveys, include a question like, “Which alternative product or service did you consider, and how does it compare to (our) product or service?” Then you can ask open-ended questions about sizing, color, shape, packaging, pricing, and functionality to gather more detail. This will tell you who your direct competitors are and why customers might prefer their products or services to yours.

Keyword research and monitoring SERPs

Keyword research is another way to identify competitors. Simply plug a few of the keywords you’re targeting into a search engine to reveal other businesses targeting the same clients or client needs as you.

Social media

Find out which products your target audience recommends on social platforms for a need you solve. Facebook, Twitter, and Instagram are good places to start, but don’t forget other helpful social platforms like Reddit and Quora.

Industry events and conferences

This method might appear surface-level, but it’s a great way to see your competitors in action. And the best part? All you have to do is attend an event or conference in your industry. Your direct and indirect competitors will be there with the goods or services they offer.

Next steps: competitor analysis

Once you know your competitors, it’s time to dive into a comprehensive evaluation known as competitor analysis.

Competitor analysis is the process of identifying and evaluating the strengths and weaknesses of your competitors. It involves researching and analyzing their products, prices, business strategies, marketing efforts, and more.

This detailed research helps you gain insights into your competitor’s operations and identify opportunities for your business. It also helps you understand how to differentiate yourself from the competition while meeting customer expectations.

Summary

To remain in business, you must play the competition game. This involves understanding which businesses are your competitors and how their operations (products, customer experiences, technology, marketing, sales tactics, etc.) impact your business.

This understanding eventually helps your business uncover opportunities, build brand loyalty, and reach new customers.

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