Business Competition: Definition, Types, Importance & Examples

Competition is a fact of doing business. Businesses see competition in the form of price, quality, design, sales, location, and almost every business process.

Many people complain about it, many learn from it, and many run away from it. But most don’t know the true meaning of business competition, its nature, types, and even importance.

Here’s a complete guide explaining everything you should know about business competition.

What Is Business Competition?

Competition in business is the contest or rivalry among the companies selling similar products and/or targeting the same target audience to get more sales, increase revenue, and gain more market share as compared to others.

Types Of Competition

Also called market competition, business competition is usually a fact in a profitable market – many players produce similar products, sell through similar channels, and even target the same audience. This competition, however, can be classified into three types –

Direct Competition

Direct competitors are vendors that sell the same products to the same audience and compete for the same potential market.

An excellent example of direct competitors is Burger King and McDonald’s business rivalry. Both of these companies –

Operate in the same industry (fast food),
Offer similar products (burgers and related fast-food products),
Satisfy the same need,
Use the same channels of distribution (retail chains, takeaway, and home delivery),
Target the same audience (working individuals).

Indirect Competition

Indirect competitors are vendors that sell products or services that are not necessarily the same but satisfy the same consumer need.

An example of indirect competitors would be McDonald’s and Pizza Hut.

Even though these two vendors sell products that are different, they are considered to be competitors as they –

Operate in the same industry
Target the same audience
Satisfy the same need

Potential or Replacement Competition

Replacement competitors (also called potential competitors) are vendors who have the ability to replace the business’ offering altogether by providing a new solution.

The smartphone was a replacement competitor of digital cameras. Even though these two products had different uses, smartphones had the ability to provide a totally new solution to the existing photography need of the customers.

Importance Of Business Competition

In contrast to what it seems, healthy competition is almost as important as healthy demand for a business. It-

Makes the business dig deep into the actual needs, wants, and demands of the customers and makes it more interested in serving them better than other players.
Makes the business realize its actual strengths and weaknesses.
Makes the business focus on more than just the offering; in marketing, branding, customer service, and customer retention.
Keeps the companies on their toes and induces a habit of constantly innovating and improving the product.
Educates the business about the intricacies of how the usual market works, how to position the brand, produce efficiently, and market sell effectively.
Provides customers with options to choose from while shopping.

Benefits Of Business Competition

Competition benefits all the three parties connected with the offering – business, consumers, and even the market. Here’s how

Increases the demand: A healthy competition often leads to investment in more marketing activities by different players, which eventually increases the overall demand for the product in the market.
Boosts innovation: Competition keeps the business on its toes and makes it imperative for it to innovate and improve.
Helps business find its competitive advantage: Businesses often track, analyze, and study what their business rivals provide and how do they provide it, to improve their offerings and cater better to their customers.
Makes businesses serve customers better: Rivalry among the companies is often won by the company that stands out and serves the customers better than others. This makes the market players put customers on the top of their priority lists.
Makes employees more efficient: Competition increases the pressure on the employees considerably and makes them give their best to the organisation.
Boosts constant business development: Constant holistic business development is what usually makes the business tackle competition in the long run.

Disadvantages Of Business Competition

Business competition isn’t always beneficial too. High competition has the following disadvantages –

Reduces the business’s market share: A rise in competition makes the business share its market with other players. This is often unwelcomed by the existing businesses.
Puts pressure on business: Competitions puts much pressure on businesses to up their game and results in many of them failing because of their inability to compete with the big market players.
Employees feel pressurized: Increased competition adds much pressure to employees to perform well and think out of the box. Many employees can’t cope with this increased pressure.
Makes business spend unnecessarily: Competition often makes a business overspend on marketing and other promotional strategies to woo the customers, business partners, and employees. This adds to the expense and is often unnecessary.
Customers get confused: Customers are often confused by a large number of similar products available in the market. Competition makes them doubt their choice and often puzzles them.

Business Competition Examples

Coca-Cola and Pepsi

Coke vs Pepsi is a great example of direct competition. Both companies offer almost the same product but try to build their market share using marketing and positioning strategies.

DHL and FedEx

DHL and FedEx are direct competitors which offer courier delivery services all over the world. They differ in specialized services and add-ons like providing overnight delivery, long-distance delivery, etc. They also try to build their market share using price wars.

OnePlus and Apple

OnePlus isn’t a direct competitor of Apple when it comes to the pricing of the products. While Apple targets more urban, educated, high-earning individuals with its iPhone, OnePlus targets more tech fanatics and Android lovers who prefer to buy mid-price-ranged phones. However, with extensive brand-building efforts, their target audiences have started to merge, making these two direct competitors.

Burger King and Taco Bell

Even though Burger King and Taco Bell serve different products, they serve the same target audience and satisfy the same need, making them indirect competitors.

Go On, Tell Us What You Think!

Did we miss something? Come on! Tell us what you think about our article on business competition in the comments section.

A startup consultant, digital marketer, traveller, and philomath. Aashish has worked with over 20 startups and successfully helped them ideate, raise money, and succeed. When not working, he can be found hiking, camping, and stargazing.