Direct and indirect competition - how do they differ?

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Direct and indirect competition have a big impact on your company's chances of success. You need to know these two terms if you want to leave your competitors behind. Perhaps you do not need to take radical advertising measures, because your competition is inefficient and does not invest in advertising. However, it may turn out to be the opposite.

If each of your competitors has a different, very effective strategy, then to take the lead you would have to invest more than all of them put together. And all of them communication channels.

Step one - competition analysis

The problem that is universal in almost all industries is that people starting a business do not take into account that there is direct and indirect competition for their business. Moreover, they do not even know these concepts! This often leads to a tragic situation when, after investments and hundreds of hours spent on launching and company development it turns out ... that someone is already producing the same thing, only better and at a lower price. Or that we deal with dozens or even hundreds of similar companies on a district and city scale. In addition, each of them invests more in advertising or sales support. Being ahead is a much better idea. Analyze what direct and indirect competition is, even before setting your marketing goals. Ideally, even before launching a company, branch or service.  

What are direct and indirect competition? 

Direct competition is a term that even those who are not in business are faced with. This is the most obvious type of competition, so to put it bluntly: the company that produces or offers what you do. Sometimes, alongside such terms as direct and indirect competition, it is also mentioned about second degree competition. Then the service or goods are not exactly the same as yours. Instead, they solve the same problem or answer the same need.

An example of second-degree competition for a psychologist's office may be on-line development workshops or motivational guides. In this case, direct competition means other psychological offices in the same city. Interestingly, in the era of a pandemic, it will also be all offices in the world that offer online psychological services in the same language.

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Indirect competition - far fewer people have come across this term. The examples often surprise even seasoned businessmen who have never thought of this kind of competition for customer attention. It is about goods, services or activities that the customer can spend money on, rather than at your place.

To define what indirect competition means to you, it's worth doing first marketing audit. It takes more than just one industry to identify your less obvious competitors. A marketing strategist investigating what your customers may be spending their money on must be aware of the broad social or political context. It may turn out that the macroeconomic situation affects your clients' expenses. These can be, among others crisis, war, trends, social movements and moral changes. Issues you haven't even thought about when analyzing your narrow sector of industry. 

Indirect competition - examples 

Indirect competition was once described by an example by one of the directors of CNN television. Jonathan Klein said he was more worried about one billion Facebook users than rival Fox News's two million viewers. Rightly so - information can be obtained from the newspaper, television or social media. If you start spending a lot of time on the Internet, you can choose not to watch TV altogether. Then the offer of one channel or another will no longer matter to him.  

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It illustrates what is indirect competition. There are many examples, and sometimes they are phenomena or commodities - seemingly - distant or even opposite to what you offer. A person who goes to the bar for a drink may be doing something else instead. He can drink beer at home, start reaching for freshly squeezed juices and quit alcohol, join the gym, meet friends at paintball instead of at the pub ... 

Direct and indirect competition - similarities and differences 

Direct and indirect competition differ in that in the former case it may be easier for an outsider to identify the competitors than for you. Business owners often have an excellent understanding of a narrow sector of their industry. However, they no longer take into account broader phenomena - such as, for example, the trend zero waste, pandemic, political preferences. They allow customers to choose grocery shopping instead of entertainment, bus instead of plane, etc.  

However, there is a similarity to be taken into account price. If you sell lunches for PLN 30, apartments by the sea and matches are not competitive to your industry. Customers are not looking for a penthouse by the bay OR a warm meal. Direct competition there will be other restaurants that sell the same dishes for a similar price. Your indirect competition they are other goods and services at the same price. These are dishes that can be made at home, physical activities that cost PLN 30 per hour or a ticket to the cinema. Aggressive communication strategy A takeaway producer's marketing agent or a fantastic movie at the cinema can make your customers choose them over dinner at a restaurant. You have to take this into account when you create your own strategy and advertising message.

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