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How does competition affect a business?

If you open a business, you’re going to have competition; it comes with the territory. In this blog we’ll talk you through the different types of competition and how you can use it to your advantage.
How does competition affect a business?

Updated on 03/12/2020

Business competition isn’t something to be afraid of. Healthy competition can keep you on your toes and spur you on to improve your business. Sometimes it even gives you the inspiration and motivation needed to help you grow and expand.

What is competition in business?


At its simplest level, competition in business is when two or more companies compete for the same thing. Traditionally, that means competing for customers - with the end goal being profit.

A more modern interpretation of competition in business, though, involves looking at a more complex set of metrics to build a deeper understanding of how businesses compete against each other. Examples of these metrics include:

  • Leads - i.e. getting people interested in their businesses in the first place with a view to one day making a sale to them.
  • Paid and organic visibility – using cutting edge digital marketing techniques to become more visible to companies in search engines and increase web traffic.
  • Brand awareness – are customers in a brand’s target market aware of their existence? How does this stack up against competitor brand awareness?

These are just a few quick metrics out of hundreds of options within the fields of price, marketing, and service which could help to measure how effectively you’re competing with rival businesses. When thinking broadly about your competitors, there are two main categories to put them into:

Direct competition


Direct competition is when you and another business sell the same products to the same customers. When it comes to direct competition it’s really important to emphasise why the customer should pick you over your competitor - especially if the price is similar.

Indirect competition


Indirect competitors provide the same service or products and have the same end goal, but the means of getting there are different.

For example, hairdressers face indirect competition from companies that sell at home hair dye kits.

With indirect competition your messaging should focus on why your way of doing things is better. Is it quicker? Easier? A better experience? Honing in on that messaging could help you to stand out from the crowd.

What is the impact of competition on businesses?


For businesses, an ideal world may involve them having 100% market share within their respective markets and not having to worry about competition at all. That certainly isn’t the case for customers, though, who benefit from businesses competing against each other to offer the best quality products for reasonable prices.

Let’s dive into the specific advantages and disadvantages of competition for businesses, though.

The advantages of competition for businesses


Firstly, if you see a rival business launching a new product range or service modification which is performing well, then you could learn something about the needs of your consumers that you didn’t already know. When your competitors innovate and perform well, it can inspire you to try new strategies to beat them, and the process of competing can be fun, exciting, or sometimes even a little stressful. We compete all the time in our personal lives, whether that’s in sports, video games or pub quizzes - and the thrill of competition might prove enjoyable by fulfilling a primal need for some.

The exact same is true for many business owners. Competing requires a process; identifying your competitors’ activity, analysing their strategies, judging how effective you think they’ll be and comparing their processes to your own. So, it can be highly rewarding to run through this process and implement changes within your business that make you more competitive.

The disadvantages of competition in business


That said, there are some disadvantages to competing with rival businesses. An overly saturated market, whereby there are too many competitors selling similar products, may be difficult to thrive in.

That’s because the volume of parties competing for the same ad space results in the cost of advertising going up for each individual business, and the overall level of attention you have to pay to keep up-to-date with competitor strategies and innovations is higher - meaning you may need to allocate more resource to this type of activity.

What’s more, the reality of competition is that sometimes you lose. If a rival runs a slightly better seasonal marketing campaign that resonates deeply with your target audience and steals away more sales from yourself, it can be upsetting and a cause of stress.

When weighing up all of the pros and cons of competition, you may have to make a decision for yourself on whether you believe the former outweighs the latter. On the one hand, competition could encourage innovation and ways for you to think differently. It could help you learn, give you insights that you may not have otherwise had, and help you to avoid complacency in favour of being proactive. On the other, though, focussing too much on what your competitors are up to and not enough on your own activity could prove detrimental to your business.

How to improve competitiveness in business


Before you can even think about improving your competitiveness, you first need to know who your competitors are. We’ve put together a blog full of tips and advice for carrying out competitor research to make sure you’re finding everyone who’s relevant.

Price is one way to stay competitive, but it’s also one of the least flexible ways so don’t worry if that’s non-negotiable, there are other ways to be competitive.

A key way to improve competitiveness is to make the most of your USPs (unique selling points). We’ve already mentioned how important it is to highlight how your business is different, so you can focus on the benefits to customers. Why should they choose you over a competitor? Focus on your customer service, how you brand and position yourself, and the overall experience you have to sell.

Another way you could improve your competitiveness is to invest in your business. You could train your staff so they have the tools to go the extra mile, educate yourself so you know exactly what your customers need or invest in the best systems that empower you to make better and more efficient decisions. By investing in your business, you are more likely to attract and retain the best talent which may give you a competitive edge.

Expansion is also another way that could allow you to stay competitive. By doing that you may be able to increase your market share and may find that you have a whole new set of business competition. This doesn’t necessarily mean opening more shops, but it can mean creating an ecommerce website to reach more customers, introducing a new service or stocking a brand new range of products. Any way that allows you to grow your target customers could be considered a form of expansion.

How could Esme help?

These are difficult times for many businesses, so it’s important now more than ever, to take good care of yourself and your team. If you’re concerned about your business being impacted financially due to coronavirus, visit our FAQ's page for information about how we may be able to support you.