A competitor is anyone who sells the same products or services as you do. This is because you are competing against them for customers and sales. This concept is important to know because the presence of one or more competitors will directly impact how you price your product/service. There are two different kinds of competitors: direct competitors and indirect competitors.
Direct competitors are the people or businesses that you openly compete against because they sell the same product or offer the same service as you do. For example, if you own a parlor and there is another parlor on the same street, then you are direct competitors.
Indirect competitors are people or businesses that sell a substitute product or service. Their substitute is not exactly the same as the product or service that you are selling, but it serves the same purpose or addresses the same need. For example, if you own a traditional tailoring shop that sells custom-made clothing and there is a store that sells pre-manufactured imported clothing on the same street, you are
an indirect competitor. This is because you are both offering options for fashion apparel.
You may not know all of your competitors by name, but you do need to think about how their product or service appeals to the same target audience as your product/service and then develop a way to make your product or service different.
If you can’t make yourself different from the competition, you may not have enough customers to support your business.
Competitors are a threat to the health of your business, so you must figure out how you’re going to make your product or service stand out from the competition. In other words, you need to figure out what you’re going to do differently than the people who are already selling the same product or service. In business terms, this is called differentiation. For example, one restaurant sells hamburgers made with
frozen beef and the other sells hamburgers made with fresh beef. In this case, the restaurants have differentiated their products from their competition.
Before you can figure out what you’re going to do differently than your competition, you need to make sure you understand what your competitors are doing. You need to do market research on your competitors to find out what they’re doing well, what they’re not doing well, and, in some cases, what they’re not doing at all. For instance, you can send a friend, family member or coworker to try and become a customer of your competitor. Test the products and/or services and make notes on everything from presentation to customer service to follow-up after the purchase. This process is known is Mystery Shopping. You’ll use this information to figure out how you can make your product or service stand out.
Start out by looking at the kinds of products or services that your competitors are offering and try to determine if there’s something that none of them are doing. You can also consider things like how do they offer customer service (on the phone or by e-mail), how many locations do they have, and what conveniences they offer (open late or open early). If you are marketing a product, you should discover what benefits their product offers (for example, it makes hair shiny) or at what price they are selling.
As part of this investigation, look at your own strengths and weaknesses as your competitor would look at them. Then try to imagine what they will do in order to gain sales and have a marketplace advantage over you. This thinking will enable you to defend your business against possible attacks from your competition.
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