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What is Competition in Marketing? - Definition & Types

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  • 0:00 What Is Competition?
  • 0:57 Types Of Competitors
  • 4:05 Relationships Between…
  • 4:40 Lesson Summary
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Lesson Transcript
Instructor: James Carnrite

A marketing, communications, and supply chain professional who has a masters degree in IT Mangement. Has been working with young professionals to develop their leadership styles.

The personal tablet and smartphone are two examples of how competition can drive innovation. This is just one effect of competition and in this lesson, we will explore other effects and types. A short quiz will test your knowledge.

What is Competition?

So, what does competition mean in the field of marketing? 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.

Types of Competitors

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.

Let's think about office supply stores, for example. For a long time, one of Staples' largest direct competitors was Office Depot. If you've ever been inside these two stores, you know that they operate in similar ways and offer many of the same products and services. Interestingly, Staples recently acquired Office Depot in a merger, as a solution to the problem of their long running competition. A direct competitor is what typically comes to mind when you refer to the term competition, and usually the type that draws the most focus from companies when designing strategies.

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, such as Lowes or Home Depot. Both of these models are aimed at satisfying the customer's needs and desires, but they use a different marketing mix and have different methods of generating revenue. By outlining all the potential ways the customer's 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 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.

For example, let's say you're a kid getting ready to go on a long road trip with your family. You have enough allowance saved up to buy one new thing to entertain yourself during the trip. You peruse all your options until you narrow it down to a Harry Potter book to read or a portable CD player to listen to music. Since you have the same resources to work with in either scenario and you can only buy one thing, the book and CD player are replacement competitors to each other. They're different products, but they fill the same consumer need, something entertaining for the trip, and use the same resources, the allowance you saved up. Replacement competitors can be the most difficult to identify because you have to determine whether products bought from another company are being bought instead of your products or if that company is actually serving a separate market.

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