Business Competition: Definition, Types, Importance & Examples

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 its toes and induce a habit of constantly innovating and making the product better.
• Educates the business about the intricacies of how the usual market works, how to position the brand, how to produce efficiently, and how to 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 the 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 organization.