Competition In Business: A Definitive Guide (With Examples)

Updated 28 September 2022

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As many companies offer their unique products and services, they often find other companies offering similar things to their customers. This can create competition between two or more companies hoping to influence the same consumer to purchase their goods. Learning about this concept can help you understand the effects of competition in a market.

In this article, we discuss what competition in business is and share key details about this concept, like its benefits, disadvantages and examples of the types of competition.

What Is Competition In Business?

Competition in business is the contest between organisations that provide similar products or services or that target the same audience of consumers. Businesses compete to convert and retain customers, increase revenue and gain more market share. This typically happens between two or more businesses that offer similar products or services within a particular industry.

Types Of Competition In Business

There are a few key types of business competition, including:

Direct competition

Direct competitors are brands or businesses selling products or services to the same target audience. You can tell if two businesses are in direct competition with each other if:

They operate within the same industry
They provide the same or similar products or services
They target the same audience of consumers
They satisfy the same customer need
They use the same channel of distribution

Indirect competition

Indirect competitors provide products or services that are not the same but that satisfy the same consumer needs. A great example of indirect competitors would be two different styles of restaurants. For example, a fast-food restaurant and a buffet restaurant do not provide the same type of product, but they satisfy the same customer need of hunger. You can tell if two businesses are indirect competitors if:

They operate in the same industry
They satisfy the same need
They target the same audience

Replacement competition

Replacement competition, or potential competition, means that other companies might be able to offer products or services that can replace current products. For example, smartphones have a lot of new features that replace other products, like cameras or music-playing devices. Though these products are different and consumers purchase them with different needs, they can still cause competition between customers in similar industries.

Benefits Of Business Competition

Business competition often provides opportunities for brands and businesses to improve the performance of their products and services. Additional benefits of business competition may include:

Addressing the needs of customers

With competition, companies think deeply about what their customers need. They hope to provide the best possible products to solve consumers' problems in their markets. Companies often review competitive products and listen to customer feedback to understand exactly what features or services they may provide to better satisfy target customers, improving their shopping experience and well-being.

Analysing strengths and weaknesses

Competition can help companies identify their strengths and weaknesses. For example, they might notice that competitors offer service options that are available all day and night and see that customers might need this for their unique products. They can then create a plan to improve their support options. Businesses can also identify where they perform well over their competition in their markets, creating a model for what else they might offer and how they might provide it.

Increasing demand

With increased competition, there might be a higher demand for products. With more people who want a certain product, each company can produce new or more products to meet these demands. Meeting customers' demands can show customers the business's commitment to them and help the overall economic performance of a market. Businesses also might adjust their pricing to meet this demand. For example, companies that produce higher numbers of products might lower their costs because they receive discounts on bulk orders of raw materials.

Encouraging innovation

With competition, it is essential for companies to innovate their products and services to highlight theirs over other companies. Businesses might look to new technology or experimental features that customers have not seen before to help their products emerge as market leaders. This helps companies to develop with changes in the markets, customers' preferences and technology to ensure they stay relevant in these evolving areas.

Promoting business development

Competition can help businesses develop over time. More than just changing their products or services, companies can evaluate their processes and structures to see how they may better address customer needs. For example, a company may change their branding or other marketing strategies to improve its performance. They may also create new workflows that can help them deliver products to markets faster, helping improve overall business operations and productivity.

Disadvantages Of Business Competition

Here are some of the common disadvantages of business competition and how companies might try to address these:

Reducing market share

Increased competition could limit the amount of share one company has in a market. This means that a primary seller of a product might lose a percentage of market share if competition enters the market. Companies might fight this by seeing what other products could improve their market shares in similar industries.

Increasing pressure

Competition can increase the pressure teams feel on the company and its employees. For example, companies may want to rush to improve their products, and employees might feel pressure to change their sales tactics to be successful. Though it is important to adapt, consider thinking thoughtfully about what adjustments you might make to be successful here.

Increasing spending

Because companies may want to innovate or shift their strategies quickly, they may increase their spending. This can be a challenge, especially if they hope to offer products at similar price points. Consider reviewing budgets and evaluating if any adjustments to your products or operations can result in increased revenue.

Examples Of This Competition

Here are some examples of business competition:

Soft drinks

Many different companies offer soft drinks to customers. A lot of them share similar qualities and flavours, so they are direct competitors. With this competition, companies may focus on particular branding and marketing efforts, like special commercials or social media engagement, to help them win over their competition. They could also innovate products with healthier options or unique flavours to improve their positions in these markets.

Clothing retailers

Clothing retailers can be direct or indirect competitors. For example, two retailers that specialise in selling dresses are direct competitors. Indirect competitors in clothing may be retailers that sell different styles of clothes, but customers may choose one over the other. A swimsuit clothing company and a generic department store might be indirect competitors, depending on what products the department store might offer at different times.

Technology companies

Technology companies can be direct and indirect competitors. For example, two popular smartphone brands are direct competitors. A company that primarily sells computers but might offer different digital products like cameras, music players and tablets can compete with these other companies indirectly or be potential competitors.

Tips For Promoting Healthy Business Competition

Promoting healthy business competition may help you stimulate the growth and development of your organisation, increase the health of the market and promote the success of your products and services. Consider following these tips to promote healthy business competition:

Understand your competition

Market research is a great way to understand your competitor's strategies and success. Understanding the effectiveness of their techniques may help you make informed decisions about your own strategies. This may result in competitors adjusting their methods to be most effective, increasing healthy market competition and promoting continuous business development.

Make positive connections

Partnerships are a great way to maximise the benefits of business competition. Similar brands or businesses may enter into partnerships to strengthen their customer outreach, connect with each other's target audiences and better fulfil the needs of their customers. Mutually beneficial partnerships may help organisations more successfully fulfil the needs of their customers, expand their audience bases and enhance positive brand perception.

Demonstrate your uniqueness

Highlighting the ways your products or services differ from your competitors is an effective way to promote business competition. Consider integrating messaging about how your products or services exceed the expectations of competitor offerings into your marketing and advertising campaigns. Demonstrating how your offerings more successfully fulfil the needs of your target audience may encourage competing businesses to improve their offerings and promote continuous improvement in the marketplace.