What are Direct Competitors?
Direct competitors are firms that offer products and services that are functionally the same. This form of competition requires companies to develop advertising campaigns that make their products stand out for consumers because they are not offering unique products that appeal to specific niches. Success for companies in this position is determined by the percentage of the market share for a given product or service they can capture. Other types of competition include substitute competition and budget competition.
Typically, the products and services produced by direct competitors are priced similarly and may be advertised and merchandised in similar ways because they are designed to appeal to similar demographics. Companies can attempt to distinguish what they are selling with quality, reliability, and other product characteristics in the hopes of giving consumers a reason to choose their product over that of the competitor. Creative campaigns can utilize a variety of media and tactics to attract the attention of potential customers.
Sometimes competition can become fierce. Direct competitors may become involved in price wars, eventually dropping their prices so low that they are barely breaking even on key products and services. Price wars are sometimes justified with the argument that the price war draws in customers and encourages them to encourage other products from the same company. This ensures that the company realizes a profit, while the competitive pricing keeps customers loyal and may lead them to recommend the product to other people.
Companies competing for the same niche can use many different advertising techniques to capture market share. This can include utilizing advertising clout to flood the market with promotional materials that drown out messages from the competition, as well as challenging the quality, reliability, or features of the competition's products. Direct competitors may also attempt to change the way people think about their products by advertising their products and services in a way that is designed to appeal to a specific subset of a demographic, such as people who pride themselves on having good taste or being on the cutting edge of technology or fashion, for example.
Economists theorize that competition in general keeps markets healthy. Direct competition, in particular, can lead to rapid innovation as companies are constantly forced to redesign their products and services to keep them fresh and new in the eyes of consumers. This can lead to improvements in related products. The constant development of new features for existing products by direct competitors can also lead to the invention of spinoff products that produce more revenues for the parent company.
I am just wondering, do direct competitors also apply to those products who are the same but has different markets? Like for example, my product is steak and my target market is students who are on the go, and there's another diner who offers the same product as mine. Will that diner be considered as my direct competitor?
Oasis - You know that’s true. When I used to work for Clinique, I always knew the product lines of my competitors like Lancome and Clarins.
I would inform customers about a competitor's product and when they mentioned them, I was usually able to talk them out of buying the competitor’s product.
I wanted to say that while price wars may work with some products, it definitely does not work in the cosmetics field because you are selling an image that is based on quality.
Sunny27 - Anyone in business knows that competitor research is critical in any field. When you run against a customer that tells you that they are not sure of your product or service and considering going to your competitors you can offer them information regarding the competitors that might make them stay with your product or service.
Of course this does not always work, but you really can’t effectively sell your product or service unless you measure what advantages your competitors has.
This allows you the ability to handle objections better. If your competitor is cheaper you might have to focus on the quality of your brand because you will have to demonstrate the reason for the difference.
I know that a lot of companies seek a competitor’s analysis by using a market research firm. A market research firm can conduct independent studies targeting the competitors business in order to determine which aspects are better and which are worse.
For example, a Mercedes Benz dealership might order a competitive analysis of other luxury dealerships like BMW and Audi. They might have the market research company either perform a focus group targeting this target market in order to ask them about their feelings regarding BMW, Audi, and Mercedes.
They may also conduct mystery shopping analysis by sending the same shopper covertly into each dealership in order to differentiate between the service levels.
Market competitors like this often perform these studies in order to improve their service to their customers. Companies like Informa Research and Martiz often conduct these types of studies.
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