Competition is the rivalry between companies selling similar products and services with the goal of achieving revenue, profit, and market share growth. Market competition motivates companies to increase sales volume by utilizing the four components of the marketing mix, also referred to as the four P's.
These P's stand for product, place, promotion, and price. Knowing and understanding your competition is a critical step in designing a successful marketing strategy. If you are not aware of who the competition is and knowledgeable about their strengths and weaknesses, it's likely that another firm could enter the picture and provide a competitive advantage, such as product offerings at lower prices or value added benefits. Identifying your competition and staying informed about their products and services is the key to remaining competitive in the market and is crucial to the survival of any business.
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.
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. 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.