5 Types of Competitors in Business & Marketing

Edgars Kebbe

Updated September 24, 2022

Launching your business is not enough to launch your products and services in the market.

You must plan the best action strategies to reach and attract more customers, especially when the market is full of similar proposals that you must study closely to position your brand. You should bet on innovative competition to refine your business plan. 

Today, I let you know everything about the different types of competitors in business and marketing and how to classify them into direct, potential, or replacement competitors. And learn the advantages of having the most challenging competitors. 

Don’t miss it!

Competition In Business & Marketing: Definition & Key Points 

It is the struggle between businesses that offer the same products or services to the same public to increase sales and the conversion rate and consolidate their position in the market share. 

It is not enough to reach the first position. As Bill Bradley said, “Becoming number one is easier than remaining number one.” It is a continuous struggle to make your target audience identify with your products and have no hesitation in choosing you as the best option. 

competition-in-business

4 Key Points of Business Marketing Competition: 

Intelligent competition requires you to focus on four critical points of your types of competitors in marketing:

  1. Product: The product is the tangible expression of their value proposition. It includes the goods and services their companies offer on the market to solve customers’ problems or needs. 
  2. Place: Where do they sell or distribute their products? It not only refers to the geographical area but also implies whether it is an eCommerce on virtual space or a physical point of sales.
  3. Promotions: are about everything you and your competitors need to make your brand visible. The goal is to get your value proposition and marketing message to the right people at the right time.
  4. Price refers to the economic value you will charge your customers for the solution you offer. This pillar is the backbone of any company’s financial health.
marketing-4p-product-place-promotions-price
4P – product, place, promotions, price

These four P’s help you build a more conscious business plan, in which you use the strengths and weaknesses of your competitors to your advantage and have more opportunities so your business can stay afloat in the marketplace.

how-to-do-ecommerce-competitive-analysis

How To Do eCommerce Competitive Analysis For Your Business

Learn more

What Are The 5 Types of Competitors? 

Five types of competitors - direct, potential, indirect, future and replacement.
Five types of competitors – direct, potential, indirect, future and replacement.

Forbes found that approximately 20% of new businesses fail while opening in the first two years.

The main reason? They don’t do market research and are not where they are getting. 

To create successful business strategies, you need to be able to identify and classify different types of competitors in business according to the level of competition they represent for the visibility and positioning of your brand. 

Let’s find the difference between a direct and indirect competitor. Check it out!

1. Direct Competitors

Direct competitors are those businesses or eCommerce that have the same proposition, i.e., offer the same products and services, and share the same target audience and market area. 

A classic example of direct competitors is Coca-Cola and Pepsi. These two companies offer the same products, cola-flavored sodas, targeting the same market segment with similar prices.

example-of-direct-competitor

2. Potential Competitors 

A potential competitor is a hypothetical competition. They include businesses, brands, or eCommerce with a similar market proposition and with whom you are fighting for the same customers. What differentiates them from the above is that they are not within your market area yet.

It is the case of Apple with Samsung, Huawei, and Sony. The first started creating computers and then ventured into the design of mobile devices with the launch of the iPhone.

example-of-potential-competitor

3. Indirect Competitors 

Indirect competitors are companies that respond to the same demand as you, but not with the same resources or way, i.e., their products or services are different.

Continuing with the example of Coca-Cola and Pepsi, which focus on satisfying the same need, “consumer thirst,” an indirect competitor could be Tropicana, which sells natural juices and offers an alternative to sodas.

example-of-indirect-competitor

4. Future Competitors 

Future competitors are potential competitors, i.e., companies, eCommerce sites, or brands that are not currently in our competitive market but have all the possibilities and means to enter the same category. 

Imagine one of those big brand stores that have not yet arrived at your location.

example-of-future-competitor

5. Replacement Competitors

Replacement competitors are similar to an indirect competitors, offering an alternative to your product or service. So, they provide an innovative way to fulfill a need. There is a risk with replacement competitors; they can gain a large share of your market. 

A well-known example of replacement competition is electronic cigarettes.

example-of-replacement-competitor

Pro Tip:

Theses type of competitors is quite unpredictable and complex to identify, so you must continually update your market research to identify and anticipate their strategies.

While the competition for many people often only represents lower prices to attract more customers, there is much more behind this concept. This forces companies to be more connected to their market, to reinvent themselves to create more solid strategies that favor the growth of their brand. 

Are There Advantages of Competition in Business? 

While the competition for many people often only represents lower prices to attract more customers, there is much more behind this concept. This forces companies to be more connected to their market, to reinvent themselves to create more solid strategies that favor the growth of their brand. 

Don’t believe me?

Well, here are just some of the main advantages of having direct and indirect competition:

  • Drives higher demand for your products and services: you would probably think there would be only an increase in supply. But the truth is that a competitive environment drives better and more creative marketing strategies to conquer the audience, which raises the demand for your products or services.
  • Motivate significant changes: Your direct competitor and, even more, a replacement competitor demand you be attentive and look for new and better action methods like better social media conversations to keep your customer base.
  • It allows you to find new opportunities: because you must conduct thorough market research to detect your direct replacement competitor. Find out more about how to identify your competitors in business and eCommerce.
  • Improve your customers’ experience: you offer better support in the sales cycle.
  • Increase the efficiency of your sales team: you require them to perform tasks in less time and with fewer resources.  

What Are the Disadvantages of Competition in Business? 

There are downside effects of having different types of competitors in marketing:

  • Generates confusion: customers cannot identify the best quality products and services when there are too many similar options. So you need to aim at strengthening your brand name.
  • Lower prices: Excess offers mean you have to lower your rents to enter the fray.
  • Additional costs: you must invest more in analysis tools and marketing campaigns to generate more leads. 

According to Forbes, about 74% of enterprises say that their main competitors are already using Big Data analytics to successfully differentiate their competitive strengths with clients, the media, and investors.

  • You lose space in the market: every time a competitor emerges, especially the replacement competitors who can change the rule of the games, it occupies a position in the industry.

Pro Tip:

To better plan your strategies, do a deeper dive through competitor analysis so that you not only identify and rank your competitors but also know their strengths and weaknesses and stay one step ahead.

That’s All for Today!

Now it’s your turn! Go and analyze your competition. Don’t wait any longer. 

All this information helps you to know the general state of your industry and the market trends, so your marketing team can develop a more accurate strategy with prices or promotions that allow you to approach your target audience optimally. In short, it helps you detect your strengths and weaknesses and locate your competitive advantage to position yourself within your market segment a leave behind any direct or replacement competitor.

Have you already classified your competitors? How did it go?

Don’t forget to comment!

Frequently Asked Questions

How Do You Define Direct Competitors?

Direct competitors are businesses or eCommerce that present in the market the same or very similar products or services to your brand. They are in the same market area, target the same audience and satisfy the exact needs. 

How Do Direct Competitors Affect a Business?

Direct competitors affect your business because they limit your market share, customer acquisition, and profitability. They increase the supply of similar products, which leads to lower prices that are more attractive to your customers. 

Why Is It Important to Identify Competitors?

Identifying your competitors is essential because it helps you discover new opportunities in your industry. You can create competitive strategies to make your products stand out in the marketplace and stay one step ahead to respond to their marketing strategies.

Why Should Entrepreneurs Analyze Both Direct and Indirect Competitors? 

Analyzing both direct and indirect competitors help entrepreneurs detect who can limit their visibility in the marketplace and capture their potential customers.

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