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What Are Indirect Competitors?

Indirect competitors don't have to be in the same industry, as those seeking entertainment may go to video arcades or theaters.
Pizza parlors must compete with eateries that don't sell pizza, such as sushi restaurants, for customers.
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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 30 September 2014
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Indirect competitors in the business world are those businesses that don't necessarily sell the same products but offer different alternatives to satisfying the same customer need. As a result, even though those companies might not be directly competing with each other in the same industry, they still may impact each other. One example might be two restaurants in the same area that specialize in different cuisines — perhaps, sushi and pizza — yet compete for the same customers. Businesses must be aware of such indirect competition when planning marketing strategies,

Most people think of competition in the business world in terms of one company in an industry competing with another company within the same industry. For example, a company that produces one brand of soda is obviously likely to be concerned with the actions of a company marketing an alternative brand. On a larger scale, the soda companies would have to be concerned if, in a particular market, a company selling popular non-carbonated sports drinks started to make a great impact on their soda sales. Therefore, the soda companies and the sports drink company would be indirect competitors.

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The concept can be stretched even further to incorporate any two businesses that are fighting for the same type of consumer. Imagine, for example, a movie theater that is 100 miles (about 161 km) from the nearest theater. It would seemingly have no direct competitors near it, but it would have to be concerned with a local DVD store offering excellent deals that lure the typical movie-goer away from the theater.

As a matter of fact, indirect competitors don't even have to sell the same type of product. Using the example of the theater again, for a long time, it might have dominated the local market in terms of how teenagers spent money on entertainment. If an arcade opened up nearby, the new business could have an effect on the theater's business.

It is important for companies to understand the role that indirect competition plays on their businesses. In some cases, a company may have to address this competition in its marketing efforts to show how it can satisfy the needs of consumers the best. Perhaps a company can even form an alliance with the competitor that would be beneficial to both. Using the example of the movie theater and arcade, the two businesses might agree to sponsor a promotion in which people with movie stubs from the theater can get free arcade play on the same night. Such an arrangement can turn the indirect competition into a positive business relationship.

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