Competitor is any person or entity that is in the same or similar industry, or which offers a similar product or benefit to the customer. The presence of competitors make the market competitive, driving down the prices and margins on goods and services, as the competitors attempt to gain a larger market share by competing on prices i.e. lowering its prices more than its rival.
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Depending upon whether same products are competing or it is a similar audience being targeted, there are three types of competitors namely:
1. Direct Competition – Similar products and revenue goals. In this type, 2 companies with similar products offer the same benefit to the same customer audience.
2. Indirect Competition – Similar products but different revenue goals. In this scenario, two companies offer the same product & benefit, but have different audience & hence different revenue goals
3. Replacement Competition – Substitute products, same customer time/money. In this type, the products are not same but can be substituted for each other but are targeted to the same customer.
It is an important aspect to look at before entering a market and is, hence, a part of both Porter’s 5 Forces and the 5C Analysis. These two tests help analysis a market with respect to its attractiveness to competitors.
Some real life examples are as follows:
1. Direct competition: Pepsi and Coca-Cola have been in competition in the food and beverage industry. In the aeroplane industry, Boeing and Airbus are competing in the same space. The same goes for Unilever, Procter & Gamble and Nestle competing in the FMCG industry.
2. Indirect competition: A coffee brand like Nescafe with always face competition from tea brands as an indirect competition.
3. Replacement competition: Pizza Hut offers pizzas & McDonalds offers burgers, but they are offering food to the same audience.
Hence, this concludes the definition of Competitor 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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