Are You Keeping Tabs on the Right Rivals? What to Know About Indirect Competition

Competition is a constant in business, but it‘s not always clear-cut. While you‘re busy battling your most obvious rivals, you could be overlooking stealthier threats to your market share. It‘s called indirect competition, and it has felled many an oblivious company. Just ask Blockbuster about a little upstart called Netflix.

To remain relevant to customers today, you must vigilantly monitor both your direct and indirect competitive landscape. This guide will walk you through:

  • What indirect competition is and how it differs from direct
  • Why indirect rivals pose a growing threat, especially online
  • How to identify and analyze your indirect competitors
  • Strategies to defend your turf in an era of blurred market boundaries

Armed with these insights, you can ensure you never lose sight of the competitive big picture.

Direct vs. Indirect Competition: A Tale of Two Rivalries

First, let‘s define our terms. Direct competition refers to companies selling essentially interchangeable products to the same customer base. Think McDonald‘s vs. Burger King, or Ford vs. Chevy trucks. Customers can generally substitute one for the other to meet the same need.

Examples of direct competitors:

  • Laptops: Dell vs. HP
  • Athletics: Nike vs. Adidas
  • Ride-sharing: Uber vs. Lyft
  • Grocery stores: Kroger vs. Safeway

Indirect competition is trickier to spot. It involves companies that sell different products or services that could still satisfy the same underlying customer need in some way. For instance:

  • Starbucks vs. Jamba Juice. Different products (coffee vs. smoothies), but both competing for customers‘ on-the-go breakfast dollars.

  • Home Depot vs. a local handyman service. One sells DIY supplies, the other does it for you, but both help customers fix up their homes.

  • An Indian restaurant vs. a grocery store. Customers could meet the need of "dinner" by dining out or by cooking at home with store-bought ingredients.

More examples of indirect competitors:

Company Indirect Competitors
Barnes & Noble bookstore Amazon, libraries, e-reader makers, Netflix
Tiffany & Co. jewelry Kay Jewelers, Etsy, wedding planners, travel agents (for "special occasion" budgets)
Ticketmaster StubHub, artists‘ own ticketing sites, scalpers, streaming concerts

The lines between direct and indirect competition blur even more in the digital world, where customers can find myriad alternatives with a few clicks. As Harvard Business Review reports, "Industry lines are becoming increasingly permeable. Organizations that never saw themselves as competitors are now targeting the same customers."

Why You Can‘t Afford to Ignore Indirect Competition

Many businesses carefully study their direct competitors but pay scant attention to indirect rivals. That‘s a mistake. Here‘s why:

  1. Indirect competitors are coming for your customers.

A whopping 76% of consumers say they‘re more likely to consider a brand they weren‘t previously aware of if it offers what they need, even if it‘s not a traditional provider in that category. Indirect competitors are wooing your customers as you read this.

  1. Substitutes shrink your market.

The more viable alternatives customers have to meet a need you serve, the less market power you wield. As one analysis calculates, "If substitution is easy and substitution is viable, this weakens your power."

  1. You could be blindsided by disruption.

Disruptors often start as indirect competitors, then rapidly encroach on incumbents‘ core business. Just ask traditional taxi companies about Uber and Lyft. Monitoring indirect rivals helps you foresee industry-rocking threats.

  1. You‘re missing opportunities to grow.

Analyzing how indirect competitors meet your customers‘ needs can spark ideas to expand your own offerings, as this Entrepreneur piece explains. Maybe you can add a new product line, partner with an indirect rival, or even acquire them.

How to Scope Out Your Indirect Competition

To identify and evaluate your indirect competitors, think like an anthropologist. Immerse yourself in the world of your customers and catalog all the ways they could meet the need you address. Here‘s how:

1. Map the customer journey from end to end

Walk through your typical customer‘s process for solving the problem your product serves. Note every type of solution they might consider along the way.

Say you run a pet supply store. Your customer‘s journey to get pet food might look like:

  1. Realize they‘re low on pet food
  2. Consider options:
    a. Buy at your store
    b. Buy at the supermarket (indirect)
    c. Buy from an online retailer like Chewy (indirect)
    d. Make homemade pet food (indirect)
  3. Weigh factors like price, convenience, brand trust
  4. Decide and purchase

Mapping this out surfaces indirect competitors you need to have on your radar.

2. Examine your customers‘ adjacent purchases

What else are your customers buying in the same general category as your offering? These related purchases can point to indirect competitors.

Say you sell software for small business accounting. Your customers likely also purchase:

  • Payroll services
  • Financial consulting
  • Business credit cards
  • Cash flow loans

While not identical to your product, all of these could meet some aspect of the "manage my business finances" need. Their providers are potential indirect competitors.

3. Conduct voice of customer research

Surveys, interviews, focus groups, and social media listening can reveal where else your customers go to meet needs you serve. Ask questions like:

  • How else do you currently solve [X problem]?
  • What other options did you consider before choosing us?
  • Where do you go for information or advice about [X topic]?

Listen for mentions of other providers customers perceive as alternatives, even if their offerings differ from yours.

Analyzing Your Indirect Competitors

Once you‘ve identified your indirect competitors, study them to gather intel you can use to fortify your own position. Follow this process:

  1. Catalog their offerings.

    • What exact products/services do they provide?
    • How are they similar to and different from yours?
    • What unique value do they offer customers?
  2. Analyze their marketing and positioning.

    • How do they describe their benefits?
    • What kind of language and imagery do they use?
    • What channels do they market through?
    • Whom are they targeting?
  3. Assess their strengths and weaknesses.

    • What do customers see as their key advantages?
    • What are their vulnerabilities?
    • How do they stack up against you on key buying factors like price, quality, service, brand equity?
  4. Monitor their moves.

    • What new products, features or marketing tactics are they trying?
    • Are they expanding into new markets or customer segments?
    • Do they seem to be thriving, treading water, or struggling?

Equipped with this analysis, you can make informed choices about how to counter your indirect rivals‘ lure.

Strategies to Outmaneuver Indirect Competitors

While you can‘t control the entire universe of alternatives available to customers, you can take steps to secure their loyalty:

  1. Emphasize your unique selling proposition (USP). Double down on what sets you apart from even your indirect competitors. Make it crystal clear to customers why you‘re their best bet.

  2. Add value around your core offering. Provide resources, service and experiences customers can‘t get from indirect rivals. Turn your product into an irreplaceable solution.

  3. Offer a customer loyalty program. Reward customers for choosing you consistently over other options. Make your offering their default choice.

  4. Form strategic partnerships. Identify indirect competitors you can collaborate with on a product bundle, cross-promotion or shared service that benefits you both.

  5. Acquire an indirect rival. If you can‘t beat ‘em, buy ‘em. Acquiring an indirect competitor can instantly expand your market, offerings and customer base.

The Future Belongs to the Indirectly Competitive

The 2020s are ushering in a hyper-competitive new world where digitization is dissolving boundaries between industries and categories. As one CEO quoted in Forbes puts it, "Our competitor is no longer Company X in our sector, but any company in any sector that delivers a best-in-class customer experience."

To thrive in this fluid new landscape, businesses must become masters of indirect competitive strategy. Those that match their offerings to customers‘ full constellation of needs, wherever they may roam, will gain the edge.

Use this guide as your roadmap to identifying, analyzing, and outsmarting your indirect competitors. Your business‘ future relevance depends on it.