Direct competitors offer the same primary services to the same customer base, while indirect competitors offer the same or similar services as part of a larger service offering or as a substitute. Both types of competitors can impact a company’s success, and a good business plan should take both into account. Indirect competitors can attract more business than direct competitors, especially if they offer multiple services in the same position.
Every company has both direct and indirect competitors. A direct competitor is a company that offers the same primary services to the same customer base. An indirect competitor is a company that offers the same or similar services as part of a larger service offering, or that offers a good or service that can serve as a viable substitute. Both types of competitors can attract business from a company, and a good business plan should take into account both types of competitors.
One of the main differences between direct and indirect competitors is the type of business. To be considered a direct competitor, the competing business must be located in the same specific sector as the company under consideration. For example, direct competitors of a movie rental shop would be other movie rental shops and rental kiosks. Furthermore, direct competitors serve the same customer base, so online rental establishments would be direct competitors, even though the company may not be located in the same geographic area.
Indirect competitors, on the other hand, would be shops offering the same product or service, but not their main service. In the case of a movie rental store, this could include grocery stores or other retailers that include movie rental departments. Similarly, in the case of a fried chicken restaurant, this could include the prepared food section of a grocery store.
The difference between direct and indirect competitors is not always clear cut. Indirect competitors can also be companies offering a substitute for the primary company’s offer. For example, a fried chicken restaurant competes directly with other fried chicken restaurants, but also competes indirectly with taco stands, burger joints, and other quick service restaurants. While specific product offerings differ, each satisfies the same basic need: quick meals at low prices.
When creating business and marketing plans, many companies fail to account for both direct and indirect competition, but both can impact a company’s success. In fact, there is evidence that indirect competitors can attract more business from a company than direct competitors. This is especially true when the competitor offers multiple offers in the same position. For example, a customer might prefer chicken restaurant A to chicken restaurant B and he would be unlikely to take business from their favorite shop and give it to the least favorite shop. If the same customer, however, is already shopping at a grocery store that offers acceptable chicken, the customer may purchase their chicken there rather than making a second stop.
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