Understanding Direct, Indirect, Potential, and Future Competition

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Although your business may be filling a unique gap in the market, there will always be other businesses offering similar products or services. To get an edge over other businesses in your industry, you need to understand the different types of competition and how they impact your business.

Direct Competition

When multiple businesses offer similar services or products, they are said to be direct competitors. An example of this is Apple’s iPhone and Samsung’s Galaxy. To beat direct competition, businesses often use competitive differentiation strategies to set their brands apart from the competition.  Competitive differentiation is meant to convince customers that your product is not only different from the rest in the category but also superior.

To stand out, vendors use unique selling points such as price, product design, features, and quality, among others. Although customers will compare a variety of prices, service levels, and quality, not all will choose the same combination. This essentially is why direct competition exists.

The best way to deal with direct competition to identify your competitor’s strengths and weaknesses and then fill in the gaps. Most businesses whose competition offers very similar products can monitor the prices of their competitors and adjust their own to attract more customers.

Indirect Competition

Indirect competitors do not compete on the basis of similar products; rather, they offer slightly different products that target similar customers as your business. This means that they can potentially take away your customers since the product, although different, meets a similar need. What makes indirect competition harder to deal with is the fact that the power does not belong to the company; the power belongs to the customer.


An example of indirect competition is when someone is hungry, they may choose to grab a burger or pick up a frozen pizza. This choice is driven by their preference for one over the other, and there’s little you can do to change the consumers’ taste buds. Although both products satisfy hunger, they are different. Still, they compete indirectly because they both satisfy hunger. The best way to deal with indirect competition is to appeal to your customers’ values and influence their attitude toward your products.

Potential competition

This refers to a business that either offers similar products or substitutes but doesn’t have distribution to your markets yet.  For instance, an organic cosmetics business selling its products in Europe may pose a potential threat to your markets should they decide to bring their ventures to your locality. To deal with potential threats, the secret is to build strong brands. Concentrating on quality will help your customers stay faithful even when competition shows up.

Future competition

To run a successful business, you must plan, protect, and position yourself strategically to deal with future competition. Anytime you’re entering a market with existing competitors, it’s only fair to imagine that there will be new competition in the future to deal with. Coming up with reaction strategies in preparation for future competition may man focusing on market and distribution rather than just innovation.

An understanding of the type of competition you’re facing or are likely to face can help you advance in business. You can use competition to broaden the knowledge of your target market to refine your strategy.

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