Direct vs Indirect Competitors: What’s the Difference?
November 22, 2021
What’s the difference between direct vs indirect competitors?
- Similarity of Products and Services
- Target Market
- Price Points
No matter how big or small, all businesses always have competitors. Even if somehow, you’re literally the first company in a certain business venture, someone will eventually come and be a competitor. Don’t worry, healthy competition can drive a business forward, but you have to know your competition well. This is where competitor analysis comes in. When you analyze your competition, you have to know the difference between direct vs indirect competitors.
These two types of competitors don’t have the same effect on your business, so your approach to each has to be different. Keep reading to learn more about their differences!
Similarity of Products and Services
When two businesses have similar or identical products or services, it’s easy to see them as competitors. But not all of them can be considered direct competitors. Direct competitors offer the same products and services as you. The best example is McDonald’s and Burger King, where the Big Mac is a direct competition to the Whopper.
Indirect competitors have similar products as you, but they take a different approach. To follow our example, an indirect competitor of McDonald’s is Subway. They both offer fast food products, but one is focused on burgers and meals while the other focuses on sandwiches. These types of competitors don’t have as big an effect as direct competitors, but you should always keep an eye on them nevertheless.
Target Market
The target market of businesses is what they often compete for. Rival businesses will take steps to make themselves look better and/or make their competitors irrelevant.
Direct competitors compete for the same target market. McDonald’s and Burger King both vie for the attention of fast-food customers. They target exactly the same demographic, which makes the competition between them tenser.
Indirect competitors, on the other hand, can have a target market with the same goals, but not exactly the same audience. Fast-food customers can choose between McDonald’s and Subway, but there could still be a difference in customer goals. Do they want fast-food burgers or fast-food sandwiches?
Price Points
A business’s price points can dictate its effects on both the target market and your competitors. Setting price points can gain you customers and push out competitors. It can also help you determine what type of competitors you have.
Generally, direct competitors have very similar price points as you. Their target market usually belongs in the same class category. If you think about McDonald’s and Burger King, you don’t think of fine dining, right?
Indirect competitors may be businesses who offer the same products or services as you, but with very different price points. A good example of indirect competitors based on price points are Gucci and H&M. They both sell clothes, but with only comparable price points at best.
Key Takeaway
By keeping these three in mind, you can easily solve the direct vs indirect competitors problem on your own. Analyze how similar your products are, the target market, and your price points and you’ll figure it out.
Are you interested in learning more about competitor analysis and businesses in general? Then send Benito Keh a message and he can talk business! He’s a Filipino entrepreneur who wants to help others, and you can reach him through this link anytime!