There are two kinds of competition in the markets- direct and indirect. The direct competition takes places among sellers of the same commodity whereas Indirect competition take place among sellers of different commodities but of the same product group.
For example, a direct competitor of Pizza Hut will be Dominos (pizza) whereas an indirect one will be Burger King, McDonald, etc (Burgers). Since Pizza Hut and Dominos are known for their varieties of Pizzas, they are direct competitors. But, an indirect competition is with McDonald’s or Burger King as they sell products which 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, the indirect competition will first come to play than the 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.
What is Indirect Competition?
Any competition which does not compete on the basis of the same product, but which does take away the potential customers from you is an Indirect competition. Companies can have many strategies to tackle direct competition. But tackling indirect competition is difficult as the power belongs to the consumers and not with the company.
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 competition is mostly seen among the vendors and the suppliers as they have direct customer interface. 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.
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 indirect competition takes place among these products.
- Beverages & Desserts
First, indirect 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 the cold drinks like Coca-Cola, Pepsi, etc. another group is the cold tea, cold coffee, a third group is fruit juices, lemonade and a fourth is a flavored water (though not as much as the other three). There may be suppliers selling an only hot beverage. 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 indirect competition. 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.
- 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 indirect 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 competition within the 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 internal indirect 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 later 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 not just consumer medicines, they also take home a brand, that too after facing indirect competition.
- Electronic Devices
The present electronic market is abuzz with products performing multiple functions. For example, there are smartphones like Mi which 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.
- 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 indirect competition; thus putting consumers into a hard-to-decide situation.
A good example will be private coaching at a physical place and online coaching from education apps and websites. No doubt the service is 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 of delivery is different and choosing this way requires a decision-making process in the consumers’ minds.
- Automobiles to a fewer extent
When consumers have enough money so that they can purchase a high-budget two-wheeler and a moderate-budget car, the two automobiles come into indirect competition. For example, both Harley Davidson and Maruti Suzuki cost more than 5lakhs. Hence, the customer has to decide whether to go for bikes or for cars and then select the brand.