There’s more to worry about then your main competition. Now, What Are Indirect Competitors?

There are many business terms out there that are pretty simple and self-explanatory. For example, the term “direct competitor” is pretty easy to understand. They’re your business’s direct competition that offer the exact same things to customers that you do. 

However some terms are a bit more complicated to explain. For example, what exactly are “indirect competitors”?  

Indirect competitors are…

Indirect competitors are businesses that target the same market as your business but offer customers a different solution compared to yours. Indirect competitors will be one of the biggest competitive pressures that you and your business are going to face.  

Customers make their purchasing decisions based on their needs. If more than one business offers the same customer base a solution for their problems, then they’ll compete with each other. To be an indirect competitor specifically, the competitor in question must have a different solution than the one your business is offering while still aiming for the same target market.

Aside from indirect competitors, there are other competitive pressures that you’ll need to deal with. You’re going to have to handle “direct competitors”, “power of customers”, “power of suppliers”, “threat of substitute products” as well as “threat of new entrants”. 

For the sake of being comprehensive, explanations of the above competitive pressures will also be explained below.  

What’s the definition of Indirect competition?

Indirect competition is when two or more businesses offer customers different products or services while competing for the same target market in order to satisfy the same specific customer need.

What are some examples of indirect competitors?

A simple example of indirect competitors are two restaurants that offer different kinds of food. For example, a burger and pizza shop that do business in the same general area would be indirect competitors. The burger and pizza shop are both aiming for the same target market but their products aren’t the same. 

A customer looking for a burger specifically won’t go to the pizza shop. However, a customer who’s hungry and is just looking for something to eat could go to either the burger shop or the pizza shop. 

A real life example of indirect competitors that you’ve probably seen in real life are coffee shops and bubble stores in the same shopping complex. They both offer a different solution (coffee vs bubble tea) to similar target markets (thirsty shoppers). 

Direct Competitors: What is direct competition?

Direct competition is when two different businesses have the same solution or product and target the same potential customer base. A simple example is two coffee shops with the same menus doing business in the same neighbourhood. They’re both providing the same things and targeting the same people so they’re in direct competition with each other.

Even if their menus are slightly different, they’re fundamentally the same thing. So these two shops are direct competitors that are competing with each other.

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The Power of Suppliers: What is supplier power?
What is Supplier Power?

Suppliers have the power to influence your business’s prices as well as the availability of the products and solutions you provide. Suppliers have this power because businesses are dependent on them for resources and this is especially true if there are very few suppliers available but there’s very high demand for the supplies they provide. 

Learning to negotiate with suppliers is something you just have to do if you choose to go into business. 

The Power of Customers: What is customer power?

Customer power is also known as buyer power. Customers and buyers have the power to influence your business’s prices since they directly affect the quantity of your sales. Buyers that have a significant amount of power can bargain with you on your prices. They can do this by bargaining bases on volume or by threatening to go to your competitors. 

You can deal with this by making sure your product or solution stands out on the market and is in high demand. You can also move into new markets to find more customers to decrease customer power.

The Threat of New Entrants: What is threat of entry?

Threat of entry is also known as threat of new entrants. This is when a new competitor to your business comes into the picture. If you already had a direct competitor to deal with, you now have another headache on your hands.

To protect your business from the threat of new entrants, you need to choose a business that has a decent amount of barriers to entry such as high cost or difficulty finding suppliers. You can also make your own “barriers” by building customer loyalty or having impressive product differentiation within your industry.

The Threat of Substitute Products: What is the threat of substitution?

The threat of substitute products is closely related to indirect competition. Indirect competitors aim to provide substitute products or services to your target market. A good example is KFC trying to take away customers from McDonald’s by serving fried chicken instead of burgers to hungry patrons.

The threat of substitution is high when rival businesses offer potential customers better quality or lower cost products. Customers will then have the chance to weigh their options based on their needs. Depending on which side of this you’re on, your business will either suffer or grow.

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Closing 

To summarise, indirect competition is when a competitor is aiming for your customers but is offering a different product or solution than the one you’re providing. Meanwhile, direct competition is when a competitor is aiming for your customers… while also offering them the same things that you are.

This article is a little bit dry and might take a bit for you to wrap your head around but learning terms that frequently come up in business can only help you in the long run. For example, learning the difference between direct and indirect competition can help you strategize and plan your business growth accordingly.