Direct vs. Indirect Competitors: How To Rise Above Competitors

Understanding your competition is crucial for business success. Whether you’re launching a startup or growing an established company, knowing who you’re up against—and how to differentiate yourself—can make the difference between thriving and merely surviving.

There are two main competitor types in business: direct competitors and indirect competitors. Direct competitors target the same customer because they sell essentially the same goods or services. Indirect competitors aren’t selling the same products as one another, but they’re competing for the same pool of customer dollars.

Learn how to identify your competitors and how to rise above both direct and indirect competitors.

What is a direct competitor?

Direct competitors offer similar or identical products or services in the same market and to the same customer. In their quest to win the business of the same target audience, direct competitors often go head to head on factors like price, features, quality, and brand recognition.

In the fast fashion industry, for example, some of the biggest direct competitors include H&M and Zara, which both vie for the same target market of price-conscious consumers who enjoy frequently updating their wardrobes. Fast food restaurants like McDonald’s and Burger King target the same potential customers.

These direct competitor examples illustrate a known reality of today’s market: If you’re competing for the same customer, the slightest differentiation—a dollar on a price tag, color options, or your product development cycle—can help you stay ahead of your competitor.

What is an indirect competitor?

Indirect competitors offer different products or services but compete for the same customer needs and dollars. Consider a bowling alley and a miniature golf course. These indirect competitors offer two different types of entertainment, but they’re vying for a similar target market: people looking for a few hours of active entertainment.

Even though indirect competitors don’t offer identical products or services, they may engage in similar marketing strategies to reach the same audience. They may also compete for similar employees and retail spaces.

How to rise above direct competition

1. Find your unique value proposition
2. Conduct a competitor analysis
3. Establish a niche
4. Excel at customer service
5. Compete on value, not just price

When Morgan Cros created Original Duckhead, a manufacturer of premium, 100% recycled umbrellas, she was well aware that there were a lot of other businesses selling rain gear. Morgan did her due diligence as a business owner, making a point to identify competitors and observe their business practices. But she also made a point not to get overly analytical.

“It’s important to study competition,” Morgan says on an episode of the Shopify Masters podcast, “but you don’t want to be bogged down by that. You don’t want to be too focused on what other people are doing. You want to do you.” Brands can rise above their direct competition by leaning into what they do best, rather than playing a relentless game of catch-up. Here are five strategies for differentiating your brand from direct competitors:

1. Find your unique value proposition

“I would say find your point of differentiation and go for it,” Morgan says. Clearly articulate what makes your products or services special. Is it superior quality? Ethical sourcing? A more personalized customer experience? For example, if your direct competitors sell generic t-shirts, you might specialize in eco-friendly t-shirts made from post-consumer recycled materials. You could also offer a lifetime guarantee to encourage more customers to give you a shot. Such offerings represent your unique value proposition that can help you stand out in a crowded market.

2. Conduct a competitor analysis

Before you invest too much in your business, assess the competitive landscape through market research to learn if there are businesses offering goods and services similar to yours. A competitive analysis studies the direct competitors in your market—their products, prices, marketing efforts, and sales figures, if they’re published. By studying your competitors’ business strategies, you can gain insight into how to differentiate your brand.

As you gather data on the competition, identify gaps in the marketplace. Are there businesses targeting the same people as you yet failing to address their real-world pain points? If you can show those same customers how your company addresses what others do not, you can gain ground on the competition.

3. Establish a niche

Instead of trying to serve everyone, consider specializing in a smaller, niche segment of the market. By becoming the go-to solution for a specific group, you can dominate that niche and build strong relationships, even if larger direct competitors exist.

Take Emily Chong and Nathan Chan’s approach with water bottle brand Healthish. They didn’t aim to dominate the entire water bottle market, where legacy players like Nalgene enjoy significant brand loyalty. They focused instead on a niche product: a bottle marked with suggestions for how much water to drink every hour.

“The flagship product is a time-marked water bottle,” Nathan says on Shopify Masters. “And there wasn’t really a physical product or a bottle that looked great that allowed you to do that. They say you should drink two liters of water a day. So if you fill it up two times and follow the time indicators on the bottle, you can actually get your daily intake of two liters of water a day.” By leaning into their niche, Nathan and Emily enjoy market positioning that would be hard to achieve if their product only had very similar features to what already exists.

4. Excel at customer service

In a crowded market, exceptional customer service can be your strongest differentiator. Go above and beyond in support, responsiveness, and problem resolution. This builds deep customer loyalty that direct competitors may find hard to replicate.

5. Compete on value, not just price

If your only selling point is offering the lowest prices around, you may find yourself in price wars and chasing bargain-hunting customers who don’t exhibit brand loyalty. You can sell products with the slimmest of profit margins, only to lose prospective customers to bargain basement brands like Temu and Shein.

Instead of competing only on price, focus on value-based pricing. This means pricing your product according to the perceived value it offers to the customer, which might allow for premium pricing if your differentiation is strong enough. You can also bundle products, provide loyalty programs, or highlight quality to show why your offering is a better value for the amount spent.

How to navigate indirect competition

• Understand the core customer need
• Monitor broader market trends
• Form strategic alliances
• Diversify your offerings

Many of the same tactics apply to navigating both direct and indirect competition, but the key to outshining indirect competitors is understanding the broader customer problem you’re solving. This gives you clarity on how your solution compares to alternative ways of solving that problem. Here are the tactics to try:

Understand the core customer need

To expand your focus from direct competitors to indirect ones, go beyond your product and think about the fundamental problem your customers are trying to solve. If you sell specialized running shoes, your indirect competitors might be cycling apparel companies or even health food stores. Customers turn to all three in search of the same goal: improving their health. Gaining this understanding can help you develop effective marketing that encourages target customers to spend their “health” dollars on you.

Monitor broader market trends

Indirect competitors often emerge from shifts in consumer preferences or technology. Keep an eye on macro trends and how different industries are adapting to meet evolving customer expectations to anticipate new sources of competition.

Emily from Healthish understood this principle well. She wanted Healthish to pick up new customers from health and wellness communities, so she monitored trends in those communities to gain a competitive edge. “I joined all these health communities on Facebook groups, just to validate my idea,” Emily says. “We wanted to attract people that would be interested in their health and wellness,” Nathan adds. By monitoring the health market, not just the water bottle market, they gained valuable insights into both new and existing customers.

Form strategic alliances

Consider strategic alliances with businesses that are indirect competitors or serve a related, but non-overlapping, customer base. For example, a local bakery could partner with a coffee shop to offer complementary products and expand reach for both. Both these businesses are aiming to solve the same problem—getting customers satisfied in the morning. Because they compete indirectly, they can team up and offer different kinds of value to their customers, which doesn’t work if each competitor is selling the same product (direct competition).

Diversify your offerings

Consider adding new products or services that address the broader customer need in different ways, offering a more complete solution than indirect competitors. Doing so also gives your sales team new ways to generate revenue.

Not sure what to offer as part of an expanded lineup? This is where customer feedback comes in. Original Duckhead got a new idea for matching bags by soliciting feedback and studying customer preferences. The bags helped Original Duckhead move beyond direct competition with other umbrella brands; they also helped it compete indirectly by offering products that similar brands did not.

How to find your competitors

When you enter a new marketplace, you might not be certain of who is directly and indirectly competing with you for business. Here are techniques and tools for identifying the competition:

• Conduct market research. Analyze your target market using reports, online directories, and platforms like Statista or IBISWorld to identify businesses offering similar products or services.
• Attend industry events and conferences. By attending trade shows, expos, and virtual summits, you’ll likely be able to spot both established and emerging competitors offering similar features and services.
• Listen to customer feedback. Pay attention to what customers say in reviews, surveys, or support emails. These correspondences may mention alternative products that users have tried or considered.
• Do keyword research and analyze SERPs. Use tools like Google Keyword Planner, Ahrefs, or SEMrush to see which brands are ranking for the search terms relevant to your business. The top ranking businesses on search engine results pages (SERPs) are often the ones you must directly compete against.
• Monitor social media and online communities. Platforms like Reddit, Instagram, TikTok, or Facebook often surface popular brands in your category that may not show up in formal industry lists. Join relevant groups on Reddit and Facebook, and dig deep into comment threads to find out what people are buzzing about.