Direct competition is a linear way to look at the business world and compare a company with other similar companies in the same industry. An example is comparing Netflix with other streaming services. On the opposite hand, the indirect competition looks at the core asset and potential long-term overlaps. For instance, Netflix’s main asset is attention, and if you look at attention, you might compare Netlfix with other services, beyond streaming, like perhaps TikTok.
| Aspect | Direct Competitors | Indirect Competitors |
|---|---|---|
| Definition | – Direct Competitors are businesses or organizations that offer similar products or services within the same industry or market segment. They often target the same customer needs and compete directly for market share. | – Indirect Competitors are businesses or organizations that, while not offering identical products or services, operate in the same general market or cater to similar customer needs. They indirectly compete for a share of the customer’s wallet. |
| Product/Service Overlap | – Direct Competitors typically offer products or services that are closely related or substitutes for each other. Customers often compare them when making purchasing decisions. | – Indirect Competitors offer products or services that may not be identical but serve similar purposes or satisfy similar customer needs. They might not be compared directly in purchase decisions. |
| Customer Comparison | – Direct Competitors are often compared by customers in terms of price, quality, features, and other factors. Customers might choose between them based on these direct comparisons. | – Indirect Competitors may not always be compared directly by customers because they offer different solutions or fulfill distinct aspects of a customer’s overall need. |
| Market Competition | – Direct Competitors engage in direct market competition and often have similar target customer segments. They compete for the same market share and customer base. | – Indirect Competitors may not compete head-to-head in the same market segment but can still influence each other’s market share by providing alternative solutions. |
| Pricing Strategy | – Direct Competitors are more likely to engage in price wars and intense competition on price, as customers can easily compare their offerings. Price becomes a significant competitive factor. | – Indirect Competitors may compete on value or differentiation rather than price, as their offerings are not directly interchangeable. |
| Example | – For example, in the smartphone industry, Apple and Samsung are direct competitors. They offer similar smartphones with overlapping features and compete for the same customer base. | – In the smartphone industry, Apple (smartphones) and Bose (high-quality headphones) could be considered indirect competitors. While they don’t offer the same products, they both target consumers interested in premium audio experiences. |
| Customer Decision-Making | – Customers’ decision-making regarding direct competitors often involves a side-by-side comparison of features, prices, and brand preferences. | – Customers’ decision-making with indirect competitors may involve evaluating the broader context of their needs and considering different aspects, such as lifestyle or use cases. |
| Marketing Focus | – Direct Competitors often focus their marketing efforts on highlighting their advantages over competing brands, emphasizing product features, and promoting competitive pricing. | – Indirect Competitors may focus on educating customers about the unique benefits of their products or services and how they fulfill particular needs or solve specific problems. |
| Market Dynamics | – Direct Competitors can have a more immediate impact on each other’s market share, leading to more intense and direct competition. | – Indirect Competitors can coexist more peacefully in the market, as they cater to different aspects of a customer’s overall needs. Competition may be less direct. |
| Market Share Strategy | – Direct Competitors often employ strategies aimed at gaining a larger share of the same market segment. Gaining market share from competitors is a common objective. | – Indirect Competitors may focus on expanding their market share by attracting new customers or by offering complementary products or services that appeal to a broader customer base. |
| Collaboration Potential | – Collaboration between Direct Competitors is less common, as they are more likely to view each other as rivals in the same market. | – Indirect Competitors may find opportunities for collaboration or partnerships, as their offerings may complement each other, providing additional value to customers. |
| Market Entry Barriers | – Direct Competitors often face lower market entry barriers because they operate within established market segments. Competition may lead to more frequent market entrants. | – Indirect Competitors may face higher entry barriers, as they might need to educate customers about their unique solutions and create demand in a less-defined market segment. |
| Market Differentiation | – Direct Competitors may differentiate themselves through product innovation, brand loyalty, or pricing strategies. | – Indirect Competitors may differentiate themselves by offering unique solutions or targeting specific niches within a broader market. |
| Customer Loyalty | – Direct Competitors often have customers who switch between brands based on factors like price, features, or perceived value. | – Indirect Competitors may enjoy higher customer loyalty if they fulfill specific needs or offer solutions that are not easily substituted. |
| Market Saturation Risk | – In markets with many Direct Competitors, there is a higher risk of market saturation, where customers have many choices, and competition is intense. | – In markets with multiple Indirect Competitors, there may be opportunities for market expansion, as each competitor addresses a specific aspect of customer needs. |
Perform a Competitor Analysis
Direct competition case study
In a direct competition scenario, you take the current customer base, define a market and industry, and, based on that, look at overlaps with other, similar products.
For instance, if you’re Netflix, you compare yourself with other streaming services:
Indirect competition case study
Another way to look at the competition.
For instance, if you’re Netflix, instead of looking only at the current customers’ overlap, you might want to check where attention is moving.
Based on that you reassess the long-term competition landscape:
It doesn’t mean that you now need to compare yourself to TikTok, rather try to understand what content model and framework TikTok uses to create a loyal users base.
And according to that, revise the business strategy to come up with new ways to conceive content, just like Netflix had done itself, a decade before.
Key Highlights
- Direct vs. Indirect Competition:
- Direct Competition: It involves comparing a company with similar competitors in the same industry. For example, Netflix would be compared to other streaming services.
- Indirect Competition: This approach focuses on a company’s core assets and potential long-term overlaps. For Netflix, its core asset might be attention, leading to comparisons with services like TikTok that also capture attention.
- Direct Competition Case Study (Netflix):
- Netflix is a global streaming video subscription service with massive success and influence.
- Key factors in its success include a recommendation system based on viewing history and a vast content catalog.
- Netflix competes with traditional TV networks and film producers for viewership.
- Indirect Competition Case Study (Netflix):
- Instead of focusing solely on customer overlap, this approach looks at where attention is shifting.
- In this case, the competition landscape is reassessed to understand emerging trends.
- The example of TikTok is used to illustrate the concept.
- The goal is to analyze other platforms’ content models and frameworks to adapt business strategies.
- Strategic Implications:
- By examining attention shifts, companies like Netflix can anticipate changing audience preferences.
- This approach prompts companies to rethink content creation strategies and adapt to evolving trends.
- Netflix’s past success in transforming content creation strategies is cited as an example of how to respond to shifts in competition.
Read: Netflix Business Model
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