Indirect Competition - Definition, Importance, Factors & Example
What is Indirect Competition?
Indirect Competition is the competition among businesses which do not produce similar products or services but fulfil similar needs for the customer and also may compete for mindshare or timeshare. Indirect competitors are those who attract same customers but offer different products or services to customers.
Businesses should be aware of indirect competitors while designing strategies. As in such kind of competition, business may not directly compete but can be considered as alternatives by customers. They can offer different products or services, can belong to different industries but can compete with each other.
Importance of Indirect Competition
It is important for businesses to understand the importance and impact of indirect competitors. Against a indirect competition company delivers message that their product or service is the best solution to their needs over other alternatives available. Indirect competitions are highly influencing businesses and to find out these competitors is not easy. And approach required to compete against so many alternatives is a crucial matter. Indirect competitions are hard to find and way harder to compete against them.
The importance of indirect competition also lies in the fact that if recognized correctly it can lead to broadening and diversification of the company. Once the company understand the consumer behavior and realizes what alternatives are being used. These days by using the indirect competition, companies are moving up in the vertical chains. Petroleum companies becoming energy companies and focusing on electric and natural gas related energy needs is one of the broader examples.
Factors in Indirect Competition
There are various factors which determine the possibilities of indirect competition. Following are the important ones:
1. Customer behavior
Consumer behavior is one of the most important concepts when it comes to indirect competition. Many times for the same demand, consumer can move to an alternate product or service creating indirect competition in the market.
People moved from cycles to motorbikes over the years for the exact same need.
2. Market Trends
New companies try out things in a different way and change the market competing with existing demands and needs of the customer. This leads to sometimes different companies competing with each other. A good example is electric and self driving cars where technology companies are competing with automobile companies.
3. Technology
Shifts in technology lead to indirect competition. Internet, Smartphones and cloud have created and changed a new market. Companies like Amazon are competing with Tesco now and are now more of direct competitors but when they started years back, they were indirect competitors.
Examples of Indirect Competition
1. There are two restaurants one offers Pizzas and other offers Burgers, both targets same audience but can be termed as indirect competition as the other pizza chain might be seen as more direct. From the customer's perspective both are good alternatives to have quick comfort food.
2. Another example can be stated like car rental company in competition with bus services as both are fulfilling the travelling needs of the customer.
3. These days we also see social media apps may compete with gaming services to take the timeshare of the customer.
Hence, this concludes the definition of Indirect Competition along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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