Ideally, you’d develop products and easily connect with your target audience. They see what you offer solves their problems, and that’s the end of the sales process. In reality, a lot usually needs to happen before a prospect is ready to buy.
A recent Google survey found that 60% of consumers take six or more actions before deciding to buy a new product or from a new brand.
Running an ecommerce company, it’s difficult enough to keep up with changing consumer expectations. How can you make sure you come out on top?
We have a simple hack for standing out in your respective markets: know the competition.
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This article will explain the differences between indirect and direct competitors. We also explain how to use knowledge about the competition to stay one step ahead.
Direct competitors are businesses that sell similar products to yours. They work in the same geographic areas you do and likely compete around the same price points. Competing brands fulfill the same needs.
Source: Unsplash
No matter how many businesses enter the race, only one wins the customer. However, you all offer similar options. You can easily steal competitors’ unhappy customers by giving them a better offer.
A classic example of two direct competitors would be McDonald’s and Burger King.
Both sell fast-food burgers and fries. They typically operate in the same cities all over the US. When someone chooses to get a Big Mac, that’s a no to getting a Whopper and vice-versa.
Another way to think of it is with sports teams. In the NBA, only one team can win the game (and the championship). Each team is in direct competition with the other teams.
Here are some other examples of direct competitors:
Indirect competitors are companies that offer different products to fulfill the same need. In other words, they take away a sales opportunity indirectly by eliminating the need for your product.
Source: Windmill
An example of indirect competition would be if the Book of Mormon Musical and The Rolling Stones were playing in the same city on the same night. One is a musical production, while the other is a live rock band.
They aren’t really close to the same thing. However, both events aim to entertain and amuse people. By going to one event, the customer is fulfilled and uninterested or unable to attend the other event.
Other examples of indirect competition include:
Indirect and direct competitors both take away business opportunities. While the result may be the same for you, it’s important to understand their differences.
Once you can identify indirect vs direct competitors, leverage the competition to your advantage.
Businesses with similar products are directly competing for the exact same customer segments as you.
Any changes to your product can result in consumers flocking to your competitors. Indirect competitors, however, offer something pretty somewhat unrelated to your product.
While there’s an overlap, some customers will only be interested in your product or the other. Using the above example, not everyone who likes musicals also likes live rock music.
Direct competition battles for customers on things like price, quality, and customer service. Since your products are similar, you need to emphasize one or two points of differentiation.
As an example, customers may choose one business over another based on the availability of a 24/7 inbound call centre for customer support.
Indirect competition is more of a long game.
You compete for customers based on loyalty, personalization, convenience, and preferences. Building long-lasting relationships determines what a target customer chooses to fulfill their needs.
You and your direct competitors are trying to connect with the same audiences. The more of you there are, the harder it is to cut through the noise and get your message across.
Your indirect competition has some overlap with your target audience. However, you aren’t vying for every single person indirectly.
For example, let’s say you offer a service to create a digital business card. Some people interested in your service may also consider building an online portfolio or website.
Services like Squarespace and WordPress indirectly compete for those customers. They offer an alternative for business networking. Likewise, a professional social media network such as LinkedIn does the same.
At the same time, another digital business card provider is the company that’s directly targeting your prospects.
Offering a unique selling proposition is critical to rise above direct competition. Focusing on something that makes you stand out attracts consumers to your brand.
Source: klue
Differentiation is less important with indirect competition. Your products or services are already quite different but solve the same pain points.
The pricing of direct competitors has a correlative effect on your sales. Customers will be tempted to switch brands if a competing business offers a better price.
Price points from indirect competitors have less of an impact on your pricing.
Sure, some things fulfill the same need at vastly different price ranges. Customers are more likely to choose an indirect competitor out of preference or loyalty.
Indirect and direct competition affects your business in different ways. Each competitor type has its pros and cons that you can use to stay ahead of the curve.
Source: Nestle
Source: McKinsey
All right, so you understand the basics of indirect vs direct competitors. That’s great, but how can you use this information to your advantage?
Follow these simple steps to expand and grow your business.
It may seem obvious, but the first step is to identify your competitors. Each competitor type requires different tactics. Use the following to identify direct competitors:
Identifying your indirect competition is less straightforward. SEO-type activities like querying broader keywords may help. For instance, “caffeine beverages” may identify indirect competitors for your energy drinks.
There are other tactics you can try. If you compete in business communications with a platform like RingCentral, then run a search looking for RingCentral alternatives.
The top results may be direct competitors similar to your service. Dig deeper into the results pages, and you might discover indirect competitors such as mobile networks or internet companies.
Screenshot sourced from Google.com
Apply this same technique to social media but with a grain of salt.
You may end up with far too many options. You can also tailor customer feedback forms to discover alternative and indirect options for your products.
It may be that indirectly competing brands manifest themselves later in the research process.
Now that you see the competition, it’s time to analyze the markets in which you do business.
Consult industry reports and related news sites to identify current trends.
For example, let’s say people are deciding to eat out less. Then, indirect competition for a restaurant would be grocery stores and meal delivery companies such as Hello Fresh.
There are other ways you can analyze the market.
SWOT stands for strengths, weaknesses, opportunities, and threats. Conduct a SWOT analysis for yourself and your competitors. This process will help you see what differentiates every competing business.
Source: WordStream
In general, you’re likely to focus on the weaknesses and threats of your direct competitors. However, you might gain more from the strengths and opportunities of indirect competitors.
With direct competition, gather data on industry benchmarks.
Choose your baseline for performance and set your own benchmark for elements such as price, value, or quality. Consider benchmarks such as customer satisfaction and brand loyalty with indirect competition.
Implement competitive intelligence tools to gather and analyze competitor information. Platforms such as Semrush and Similarweb help you track the activity and performance of your competitors.
Source: Semrush
You’ll need access to updated information to help you make decisions that elevate your brand. As data rolls in, you’ll be able to add more detail to your initial SWOT analysis and identify the best opportunities and strategies.
By now, you should be armed with a wealth of information and ideas.
It’s up to you and your team to glean insights. Spot market gaps where your brand can differentiate. Use this to attract current and newly-targeted audience segments.
Look for where needs aren’t being met by businesses who compete with you directly and indirectly. Weight the risk and reward of opportunities by calculating metrics such as the total addressable market (TAM). You can also calculate the individual market share of each company.
Let’s say you offer a virtual personal assistant service. It turns out that many businesses that hire online assistants are looking for enterprise architecture management solutions.
There’s an indirect opportunity available. You contact these service providers and form a partnership. The vendor upsells your assistant services as an add-on for their product.
Now, you have a feedback loop in place. You continually monitor your competitors. You track the most important metrics that directly affect your business, such as the price and demand for similar products.
You also keep your eye on market and consumer trends to stay on top of current and emerging businesses that compete indirectly.
Besides competitive intelligence tools, you can use the following to monitor your tactics:
Track your performance and that of your competitors. Improve your weaknesses and seize opportunities. Rinse and repeat.
Direct competitors sell the same products and services to the same target market as your company.
Indirect competitors sell different products and services to the same audience. Their offers could replace your own and still satisfy customer’s needs, solve their pain points, or help them reach their goals.
Let’s take the well-known soft drinks brand Coca-Cola. Their most obvious direct competitor is Pepsi. Coca-Cola’s indirect competitors include beer and wine companies as well as multinational chains like Starbucks.
To find out who your indirect competitors are, conduct an SEO analysis. Search for keywords related to your business, thinking about what words or phrases customers might use to search for your company or services online.
Analyze the top results to identify which brands are selling different products or services to yours but still targeting the same customer base. If they’re writing blog content similar to yours, chances are they’re a competitor in some form.
You maneuver differently around indirect vs direct competitors. However, you must be adequately prepared to battle with all competing businesses to maintain and increase your market share.
Knowledge is power. Use indirect and direct competitor analysis to understand your markets. Identify how to better appeal to various customer segments.
Leverage competitor information to improve your product and marketing tactics. Spot opportunities in markets with overlap and copy what works for other brands, just do it better!