3 Types of Business Competitors to Watch Out For (And How to Find Them)

No matter what industry you‘re in or how unique your offerings are, every business faces competition. But not all competitors are the same. While some might be fighting for your exact same customers, others might be coming at you from the side with a slightly different approach.

As a business owner or marketer, thoroughly understanding your competitive landscape is essential. You need to know who your rivals are, how they operate, and what kind of threat they pose to your success. But with so many different players in the market, it can be tough to keep track.

In this post, we‘ll break down the three main types of competitors your business needs to be aware of:

  1. Direct competitors
  2. Indirect competitors
  3. Replacement or substitute competitors

We‘ll explain what characterizes each type, share real-world examples, and provide actionable tips you can use to identify your own competitors in each category. Plus, we‘ll discuss why having a complete picture of your competition is so critical for business success.

By the end of this piece, you‘ll be equipped to map out your full competitor landscape and use those insights to fuel your marketing strategy. Let‘s get started.

Direct Competitors

When most people think of business competition, direct competitors are what come to mind first. These are the companies that offer products or services that could pass for yours in a lineup. You‘re going after the exact same customers with very similar offerings.

Characteristics of Direct Competitors

Here are some of the hallmarks of direct competition:

  • Sell the same products or services
  • Operate in the same geographic area (if brick-and-mortar)
  • Target the same customer segments or buyer personas
  • Have similar pricing and business models
  • Provide the same core customer benefits
  • Customers evaluate in the same buying process

Essentially, customers could meet the same need by purchasing from you or your direct competitor. You are more or less interchangeable in their eyes.

Some examples of direct competitors include:

  • Pepsi vs. Coca-Cola in the soda market
  • Xbox vs. PlayStation in gaming consoles
  • Charmin vs. Cottonelle in toilet paper
  • Lowe‘s vs. Home Depot in home improvement retail
  • Airbnb vs. VRBO in vacation home rentals
  • Zoom vs. Google Meet in video conferencing tools

According to a study by Crayon, 77% of businesses say direct competitors are the most important to monitor as part of competitive intelligence efforts. These head-to-head rivals have the most immediate impact on your business, so they rightfully demand the most attention.

However, while direct competition is the most obvious, it‘s certainly not the only threat to watch out for. Indirect and substitute competitors can be just as damaging to your bottom line.

How to Identify Direct Competitors

Here are some of the best ways to uncover your direct competitors:

  1. Check online review sites and business directories – See what other companies are listed alongside yours on sites like Google Maps, Yelp, and industry-specific directories.

  2. Use Google Alerts – Set up alerts for your business name, product names, and relevant industry keywords. You‘ll get an email any time a competitor is mentioned online.

  3. Analyze your website visitors – Use tools like Similar Web and Alexa to see what other sites your visitors go to. Chances are some of them are your direct competitors.

  4. Ask your customers – When talking to customers, ask what other options they considered before choosing you. You can also check for competitor mentions in customer reviews and support requests.

  5. Attend industry events – Notice what other businesses regularly have booths or presentations at the big conferences and trade shows in your space. The attendee list is also a great resource.

  6. Browse online communities – Check out forums, Facebook groups, and Reddit threads related to your offerings. Note which other companies get mentioned frequently.

  7. Talk to your sales team – Your sales reps likely hear about competitors all the time in their conversations with prospects. Ask them who comes up most as your top competitive threat.

  8. Study your indirect competitors – Businesses you identify as indirect competitors (more on how to find them next) likely have the same direct competitors as you. Researching their rivals can point you to your own as well.

Indirect Competitors

Indirect competitors can be tougher to pin down than businesses that look just like yours. Rather than identical products or services, they offer different things to the same people. While the specific offerings vary, they meet the same underlying customer needs.

Characteristics of Indirect Competitors

Some traits of indirect competitors include:

  • Sell products or services that are used differently but deliver similar end benefits
  • Target the same broad customer base, although perhaps slightly different segments
  • Fulfill the same customer needs, wants, goals, or jobs to be done
  • Operate in the same general industry or category
  • Possibly a different price point or business model
  • Come up in the same customer research and purchasing process

The key with indirect competitors is that customers could feasibly choose their offering over yours because it scratches the same itch, even if the products look quite different.

A few examples of indirect competitors:

  • Yoga studios vs. meditation apps – both help health-conscious consumers relieve stress, although in different ways
  • Colleges vs. online courses – different approaches to adult learning and professional development
  • Accounting firms vs. tax prep software – both assist individuals and small businesses with managing finances and taxes
  • Luxury car brands vs. ride share services – premium transportation options for an affluent urban market

Research by ProfitWell found that companies that raise their prices without a proportionate increase in value for the customer lose out to indirect competitors 72% of the time. So while these rivals may not be as visible, they can definitely impact your business.

How to Identify Indirect Competitors

Here are some ways to identify potential indirect competitors:

  1. Map out alternative customer journeys – Brainstorm all the different ways a customer could solve their root problem or achieve their goal besides using your offerings. Those alternatives point to key indirect competitors.

  2. Check industry analyst reports – Authoritative industry research from the likes of Gartner and Forrester frequently group related companies together based on shared customer uses, even if their products are quite different.

  3. Study your customers‘ other purchases – Use surveys, interviews, or purchase data analysis to find out what other solutions your customers use in related categories. Those complementary products may be indirect competitors.

  4. Analyze your PPC campaign – Look at which other businesses are bidding on the same keywords as you for Google Ads. Some may offer different products used by a similar audience.

  5. Use social media listening – Track relevant industry hashtags, topics, and pain points on social media. See which companies are part of those conversations, even if they aren‘t direct rivals.

  6. Scan product comparison sites – Tools like G2 Crowd, Capterra, and ProductHunt let users browse products by use case and compare them side by side. Note which other offerings are categorized with yours.

  7. Set up Google Alerts – In addition to your business name and product names, set up alerts for broader industry terms and customer pain points you address. Indirect competitors may pop up in those alerts.

  8. Ask your customers – Inquire about what other products or services your customers considered to meet the same need, not just direct alternatives to your offering. You may uncover some indirect competitors this way.

Substitute Competitors

The third type of competitor is one that sells something that could replace your product or service in the eyes of your customers. Also known as replacement competitors, these businesses provide different offerings that fill the same need as yours. If you didn‘t exist, customers may choose them instead.

Characteristics of Substitute Competitors

Here are some signs of substitute competition:

  • Sell products or services that can be used in place of yours, although they do not look the same
  • Target a similar customer base
  • Provide the same general end benefit, although often at a different price point or quality level
  • May expand your market to new customers or take market share from you by meeting the same need
  • Customers compare them to your offerings, especially if they are perceived as "good enough" or offer cost savings

For example, single-serve coffee pods are substitute competitors for drip coffee makers. Plant-based meat alternatives are substitutes for traditional meat products. A new apartment building could be a substitute competitor to nearby homes for sale.

The main thing to understand about substitute competitors is they can limit your sales and growth potential by offering customers an alternative, even if it‘s not a carbon copy of what you sell.

How to Identify Substitute Competitors

Use these strategies to identify possible substitute competitors:

  1. Consider your offerings‘ core value – What is the root benefit of your product or service? What do customers ultimately want to accomplish by using it? Brainstorm other ways they could get those same results.

  2. Analyze customer churn – If you‘ve lost customers, do research to find out what they chose instead of your offerings and why. You may find they switched to a substitute you didn‘t consider before.

  3. Look at industry and consumer trend reports – Studies that predict future industry direction and shifting customer preferences can point to burgeoning substitutes you‘ll need to watch out for.

  4. Perform conjoint analysis – This statistical technique involves surveying customers about their preferences for different product features and benefits. It reveals which elements are non-negotiable and which could be fulfilled by substitutes.

  5. Ask customers about back-up plans – Inquire about what customers would choose if your offerings were unavailable. These alternatives can reveal powerful substitutes you may not have recognized.

  6. Monitor related industries – Look for developments in adjacent industries that could impact demand for your products. A new offering there could become a viable substitute competitor.

  7. Run focus groups – Get groups of customers or prospects together and task them with coming up with different ways to solve the problems your products address. See what substitute ideas they generate.

  8. Watch the public markets – If you‘re a public company, look for analyst reports on your stock that mention potential substitutes that could negatively impact your business. This is a great way to get an outside-in view.

The Risks of Incomplete Competitor Analysis

Failing to identify and understand the full scope of competitors in all three of these categories can spell serious trouble for your business. Without a clear view of your competitive landscape, you may find yourself:

  • Losing customers to rivals you didn‘t see coming
  • Struggling to articulate your unique value proposition
  • Making uninformed product development and marketing decisions
  • Getting blindsided by industry disruptions and shifting customer habits
  • Leaving money on the table with sub-optimal pricing
  • Generally operating from a position of weakness instead of a position of strength

A study by Crayon found that 59% of businesses say competitive intelligence is ‘very important‘ to their success. Furthermore, the research showed that companies that don‘t have a formal competitive intelligence program in place are 500% more likely to see significant financial risk from competitive threats.

Boston Consulting Group also reports that "competitive intelligence is an essential prerequisite for any strategy development effort and the ability to successfully execute the chosen strategy." Without it, you‘re essentially flying blind.

So as tempting as it might be to put competitive analysis on the back burner and just focus on running your own business, that‘s a recipe for failure in the long run. You have to understand the full context you‘re operating in to make smart strategic decisions.

Conclusion

Thoroughly mapping and monitoring competitors is an ongoing process, not a one-time effort. Your competitive landscape will keep evolving, so your understanding of it needs to evolve too.

Use the strategies and frameworks laid out in this post to get a handle on the direct, indirect, and substitute competitors currently at play in your market. But don‘t stop there. Competitive intelligence needs to be a living, breathing part of your business strategy.

Commit to regularly scanning the market for new entrants and developing threats. Analyze the marketing tactics, positioning, and offerings of key competitors on a quarterly basis. Monitor competitive mentions online and in customer conversations daily. Disseminate what you learn throughout your organization so everyone is equipped to win against the competition.

The more you can ingrain competitive intelligence into your company culture and decision making processes, the better positioned for success you‘ll be. Because when it comes to business competition, what you don‘t know definitely can hurt you.

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