What is Competition in Marketing? – Definition & Types – Video & Lesson Transcript | Study.com

Types of Competitors

There are three primary types of market competition:

Direct competitors – A direct competitor offers the same products and services aimed at the same target market and customer base, with the same goal of profit and market share growth. This means that your direct competitors are targeting the same audience as you, selling the same products as you, in a similar distribution model as you.

Let’s think about office supply stores, for example. For a long time, one of Staples’ largest direct competitors was Office Depot. If you’ve ever been inside these two stores, you know that they operate in similar ways and offer many of the same products and services. Interestingly, Staples recently acquired Office Depot in a merger as a solution to the problem of their long running competition. A direct competitor is what typically comes to mind when you refer to the term competition, and usually the type that draws the most focus from companies when designing strategies.

However, customers will shop for a variety of price points, locations, service levels, and product features when considering their purchase. But they will not necessarily choose the same mix of these options in every comparison. They will likely explore as many options as they can to fill their need, which may include looking at a different service model or a different product altogether. This is where competition becomes a factor. Recognizing where you have potential competition is a key factor in determining the strongest markets for your business solutions.

Indirect Competitors – An indirect competitor is another company that offers the same products and services, much like direct competitors; however, the end goals are different. These competitors are seeking to grow revenue with a different strategy.

Nearly every company is involved with some form of indirect competition. For example, general contractors face indirect competition from do-it-yourself promoters, such as Lowes or Home Depot. Both of these models are aimed at satisfying the customers’ needs and desires, but they use a different marketing mix and have different methods of generating revenue. By outlining all the potential ways the customers’ needs can be met and tailoring your marketing mix to address the competition, you can generate an advantage for your products and services.

Replacement Competitors – A replacement competitor is another company that is offering a product or service that the consumer could use instead of choosing your products or services. The important concept with replacement competitors is that they are using the same resources to purchase the replacement product or service that could have been used to buy your offerings.

For example, let’s say you’re a kid getting ready to go on a long road trip with your family. You have enough allowance saved up to buy one new thing to entertain yourself during the trip. You peruse all your options until you narrow it down to a Harry Potter book to read or a portable CD player to listen to music. Since you have the same resources to work with in either scenario and you can only buy one thing, the book and CD player are replacement competitors to each other. They’re different products, but they fill the same consumer need, something entertaining for the trip, and use the same resources, the allowance you saved up. Replacement competitors can be the most difficult to identify because you have to determine whether products bought from another company are being bought instead of your products or if that company is actually serving a separate market.

Relationships Between Competitors

This diagram illustrates the general relationships between these three types of competitors.

Notice how direct competitors overlap in all three areas, while indirect competitors only overlap in the areas of product and consumer. Replacement products, in block C, do not overlap in the product area because replacement competitors are offering a different product to fill the same need. The dotted lines on block C indicate that while replacement competitors may share comparable business models, it’s not one of the defining conditions, so it isn’t required.

Lesson Summary

It is critical for companies to study and understand the competition. There are three primary types of competition: direct, indirect, and replacement competitors. Direct competitors are the most recognizable variety of competitors, while the most difficult type to identify can be the replacement competitors. Once you understand the types of competitors that you may face, the next step is to conduct market research, which plays a major role in understanding market competition and the voice of customers. Observing purchasing trends via focus groups, surveys, and social media outlets provides companies with feedback and knowledge about the choices customers are making and where there are unmet needs.

Marketing Competition Definition & Vocabulary

• Competition: The rivalry between companies selling similar products and services.
• Direct competitors: Companies who offer the same products and services aimed at the same target market and customer base.
• Indirect competitors: A company that offers the same products and services, but the end goals are different.
• Replacement competitors: A company that is offering a product or service that the consumer could use instead of your products or services.

Learning Outcomes

As you finish the video, you should be able to:

• Explain marketing competition
• List the different types of market competition
• Consider the general relationships between competitors