There are two kinds of competition in the markets- direct and indirect. Direct competition takes place among sellers of the same commodity whereas Indirect competition takes place among sellers of different commodities but of the same product group.
Since Pizza Hut and Domino’s are known for their varieties of Pizzas, they are direct competitors. But, indirect competition is with McDonald’s or Burger King as they sell products that fall into the same category, i.e. continental snacks.
Therefore in a given place where all the four brands are present, a consumer will make a choice based on certain parameters. Interestingly, indirect competition will first come to play then direct one. It is because customers will first choose if they want to have a Pizza or a burger.
Therefore, what matters here is which type of brands, i.e. the brands selling Pizzas or the ones selling burgers appeal to them the most. Based on this, they will go for a product which will satisfy their need. Another unique aspect of indirect competition is that it possesses the power to satisfy the same need, customers only have to make a choice.
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What is Indirect Competition?
Indirect competition is a type of competition that does not compete with you on the basis of the same product but does take away the potential customers from you. Companies can have many strategies to tackle direct competition. But tackling this type of competition is difficult as the power belongs to the consumers and not with the company.
For example – Tetley tea vs Nescafe are indirect competitors. Although both sell beverages, one sells Tea and is more popular in UK and some Asian companies whereas the other sells coffee and is more popular in Western nations. There is nothing that Nescafe can do to change the preference of people who like tea. Same ways, if someone likes Coffee, Tetley cannot change their taste. They will always prefer Coffee. Both of these companies can attack their direct competitors. However, they can affect only a small portion of the indirect competitors business.
Indirect competitors are mostly seen among the vendors and the suppliers as they have direct customer interfaces. Hence, they too contribute to product branding by direct marketing of the product. Vendors will either shout offers or will ask customers to try their product, depending on the situation.
The toughest part of getting hold of customers happens at the indirect competition level. Brands successfully position their products in the minds of customers but in the swirl of the moment, indirect competitors steal the show. Thus, the goal is to position products and appeal to the audience in such a way that it surpasses the indirect competition and drags them to the product of the brand.
Difference between Direct and Indirect Competition
Direct competition is when two or more entities in the same market are vying for the same customer. These competitors share a similar target market and often provide similar products or services. This type of competition allows businesses to directly compare their products and services, enabling them to identify which is the better offer.
Indirect competition is when two or more entities in the same market are not directly competing for the same customers, but offer a product or service that appeals to the same target market. Indirect competitors can include businesses from different industries that offer similar products (e.g. coffee and tea), or services that are complementary but not necessarily interchangeable (e.g. accounting and banking services).
Some examples of direct competitors are two competing restaurants, while an example of indirect competition is a restaurant and a movie theater.
When conducting competitive analysis, it’s important to identify both direct and indirect competitors. Knowing who your competitors are will help you better understand the market landscape and develop strategies that set you apart from the crowd. It will also enable you to keep track of what your competitors are up to and make sure you’re always one step ahead.
Examples of Indirect Competition
Here also there are two kinds of choices- close substitute and perfect substitute. The former is slightly different in composition or content whereas the latter is almost the same; the only difference is the brand and nothing else. Tropicana juice and Cold Saffron Milk are close substitutes whereas Coca-Cola and Pepsi are perfect substitutes.
A lot of competition takes place indirectly among these brand products and goods, so let’s go through some of the common indirect competition examples –
1. Beverages & Desserts
First, an indirect form of competition happens between a hot and a cold beverage. If it’s hot, then tea and coffee sellers come into the picture. Consumers preferring hot beverage decide if they want to go for tea and coffee and then decide the brand. As with cold beverages, there are many indirect competitors.
One group is cold drinks like Coca-Cola, Pepsi, etc. another group is cold tea, and cold coffee, a third group is fruit juices, and lemonade and a fourth is flavored water (though not as much as the other three). There may be suppliers selling only hot beverages.
Here comes a cross-competition between hot and cold tea as well as hot and cold coffee. As for kids, fruit juices also face competition if there are ice cream stalls within the vicinity.
Cuisines also fall into the trap of competition in an indirect manner. Consumers need to decide if they would prefer to have an Indian platter or take the taste of Chinese cuisine or opt for Continental.
All such varieties of cuisines are indirect competitors of one another.
3. Dairy or Jam and Jelly
Consumers decide if they want to smear butter or margarine or cheese or peanut butter on the bread or have it with jam or jelly. Here, the dairy product group faces the indirect type of competition from jam and jelly products.
As these are mostly sold at retails, vendors don’t have any option but to deliver is what customers ask for. There’s another indirect form of competition within dairy products itself. People are compelled to make a hard choice among the available options and finally, they go for either of the ones.
Thus, there is something like an internal indirect type of competition in this case. The interesting thing is that all these products have an equal capacity to satisfy the need.
Most consumers are unaware of the fact that the first ‘term’ of the medicine name is the brand and the latter is the composition, produced by many other brands. Therefore, it is at the behest of the physician, that a pharmaceutical brand gets prescribed to the patients.
Here too, the pharmaceutical manufacturing companies compete indirectly with one another as the basic composition is the same; they only produce it in their own brand name.
Although it may sound weird, customers do not just consume medicines, they also take home a brand, that too after facing an indirect form of competition.
5. Electronic Devices
The present electronic market is abuzz with products performing multiple functions. For example, there are smartphones like Mi that can operate ACs, something beyond the capacity of most other phones.
This gives rise to an indirectly competitive market where other phone sellers compete with multi-functionality phones.
6. Digital Devices
There was a time when desktops commanded the market. Then came laptops, which became a threat to desktop sales. Presently, there are notepads.
Hence, the sellers of these three products especially the laptops and notepads face severe competition indirectly; thus putting consumers into a hard-to-decide situation.
A good example will be private coaching at a physical place and online coaching from educational apps and websites. No doubt the service is the same but its way of delivery is definitely different.
Also, there’s a group of teachers offering physical coaching and there are websites offering this service for a fee. Hence, there’s a direct competition among the tutors and among the websites along with an indirect website teacher Vs physical tutor competition.
Here, the content may be the same, by the way, delivery is different and choosing this way requires a decision-making process in the consumers’ minds.
8. Automobiles to a fewer extent
When consumers have enough money so they can purchase a high-budget two-wheeler and a moderate-budget car, the two automobiles come into competition indirectly.
Examples of Direct Competition
Typically, direct competitors offer similar products or services. For example, two car companies have the same target audience and often compete for the same customers. Some of the other brand examples include –
- Burger King and McDonald’s
- Coca-Cola and Pepsi
- Apple and Samsung
- Ford and Chevrolet
- Nike and Adidas, etc
How to Identify Indirect Competitors?
Identifying an indirect competitor can be quite tricky, but there are some methods you can use.
- First, conduct keyword research to understand what customers might be searching for when looking for a similar product or service.
- You may also want to research customer feedback to identify any problems that your potential customers experience and how other brands address them.
- Lastly, it is important to analyze your target audience and figure out what other brands they may be considering.
It is important to identify indirect competitors since they can provide valuable insights into the market that direct competitors may not offer. By understanding what your indirect competitors offer, and how their offerings differ from yours, you can develop a strategy to make your product or service stand out.
How to Identify Direct Competitors?
Identifying direct competitors is much simpler than identifying indirect competitors. Direct competitors typically offer similar products and services to the same audience in the same market you’re targeting.
To identify direct competitors, it’s important to do some research into the industry you are operating. You can use tools such as Google search, social media platforms, or online directories to gather information on your competition and determine who your direct competitors are.
Once you have identified your direct competitors, it is important to analyze their offerings and identify any areas in which they excel or have a competitive advantage over you. You can then use this information to create a strategy or point of differentiation for your own product/service.
When it comes to competing for the same customers, understanding indirect competition is just as important as understanding direct competition. By researching the competitive landscape of your industry and analyzing all your direct and indirect competitors, you can identify potential areas of growth and how best to target new customers who may be interested in similar products or services.
Furthermore, by assessing the performance of two or more businesses in relation to one another, you can better understand how to optimize your own search engine results page and increase business growth by finding new ways to attract existing customers. With the right market research and understanding of direct and indirect competition, you can stay ahead of the curve and ensure success for your business.
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