Indirect competitors: A direct threat?

Businesses have an average of 25 competitors. It’s probably easy to name 10 of your direct and 10 of your indirect competitors. But what about the silent enemy? Replacement competitors are the ones so out of left (or even your) field, you might not have considered them sneaking away a slice of your market share.

The only thing worse than getting taken out by a competitor is when you didn’t even see it coming. 

Direct competitors are in any smart founder’s field of awareness from the get go. 

They might even be the reason you started up – to do things better. 

But what about your indirect competitors? And your (lesser known) replacement competitors?

How much of a threat are your indirect competitors to your business plan? And just how indirect is indirect? 

For example, if you’re a coffee brand, do you need to worry about what Coca-Cola is doing? (Yes.) If you’re a toilet paper manufacturer, do you need to worry about bidets? (Increasingly.)

Competition is inevitable. Survival is understanding the key players in – and, crucially – around your field.

Hidden competition

Tests of your customers’ loyalty come in three main forms.

Direct, indirect, and replacement competition.

A direct competitor will sell the same products or services as you, targeting the same customers. They will directly substitute your product or service. Due to the similarity in offering, the main USPs that are considered by your audience are cost, quality, and time (will it satisfy me quicker?).

An indirect competitor sells a solution similar to you, but may operate in a different way or category. It provides a solution to customers using a different approach.

Replacement competition targets the same audience from a totally different angle. Your customer may use roughly the same time and budget to purchase an alternative to your offering (although in some cases they may be persuaded to alter these). 

The most unsettling attack is always the one that comes out of the blue. 

Replacement competitors are that unseen enemy, and even more scarily, their success is often driven by factors completely outside of your influence.

Replacement in action 

Netflix and Amazon Prime serve as great teaching moments for this scenario – not just because they’re world leaders and everyone knows them, but because Netflix CEO Reed Hastings happened upon a particularly unpredictable replacement competitor.


Prime is obviously a direct competitor of Netflix, as are Hulu, Paramount+, and HBO Plus. 

Netflix’s indirect competitors include YouTube, TikTok, and live TV. 

But the service’s biggest competition is not other streamers. Hoffman says, “When you watch a show from Netflix and you get addicted to it, you stay up late at night. We’re competing with sleep, on the margin. And so it’s a very large pool of time.” 

With the upward trajectory of the wellness movement, compounded by other replacement competitors such as sleep tracking apps and screen-time limiters, it’s a fearsome beast to come up against. 

This is why replacement competition is so hard to see coming. No one can predict the outside factors or lifestyle trends that will change your customers’ buying habits for good. 

To keep up with competition, developments in technology, and customer needs, Netflix is apparently considering the launch of a video game service. In other words: a new revenue stream. 

Unlike Blockbuster before Netflix, Kodak before smartphones, and a devastating number of restaurants without takeaway functionality before the pandemic, companies have an opportunity to skirt the replacement trap. 

Competitive spirit 

Direct competitors are always your closest crocodile

They share the same offering and customer base, so potential for differentiation is slimmer. With fewer barriers to entry, luring your brand loyalists away is easier. Wanting a piece of your pie, tactics will be more aggressive.

But your indirect competitors also have a considerable impact on your market share. It may just be harder to foresee. They’ll have to work harder, because switching involves some level of behavioural or habitual change.

In switching from a teapot to a bean-to-cup grinder, a bicycle to an e-scooter, or a treadmill to a Peloton, the customer has to learn new systems.

You can keep hold of them by working on your customer stickiness, making them feel valued and rewarded, and keeping them involved in your brand community

Build a strong economic moat by continually showing them why you’re the best and most convenient option.

Mapping the enemy  

To fully understand your competitor landscape, build out a competitor map. 

The fundamentals of this are to identify all types of businesses that could pose a threat to your business, while taking into account your customer needs and desires. 

Do this by analysing:

  • Your customer feedback and reviews (“Who were you using before us? Who would you use if it wasn’t us?”)
  • Reviews on your competitors’ sites
  • Social media interactions with your customers and those of your competition 
  • Wider market research using news sources and professional reviewers 

Of course, it’s always harder to do this with replacement competitors, as it involves an element of clairvoyance. When Who Gives A Crap launched in 2012, they probably didn’t predict the rise of the (then extremely unfashionable) bidet. 

This is where you audit and compare your strengths and weaknesses, with the goal of identifying what you do best. That’s where your niche lies, and how you identify your guiding North Star.

What is every possible alternative a person could use to your product? How alternative can they get?

Businesses have an average of 25 competitors. For every 10 direct and every 10 indirect competitors you identify, keep a weather eye on those 5 potential replacements.

If you can identify the bidet to your toilet paper, you’ll have less chance of getting caught with your pants down.

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