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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?

Business competition isn’t something to be scared of. It can spur you on to better your business and give you the inspiration you need to grow and expand. The more you embrace competition and throw yourself into being the best, the more likely your business is to succeed.

What is competition in business?


At its simplest level, competition in business is when two or more companies compete for the same thing. More often than not, that’s customers with the end goal being profit. You can compete in loads of different ways including price, marketing, and service.

There are two important types of competition:

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 be around why your way of doing things is better. Is it quicker? Easier? A better experience? Focus on that messaging and it’ll help you to stand out.

How does competition affect business?


For customers, competition provides them with choice and the freedom to make their own decisions.

For business, competition has many advantages that all ultimately help you better your business. It encourages innovation and ways for you to think differently, it helps you learn, it gives you insights that you may not have otherwise been able to access, it helps you avoid complacency and encourages you to be proactive.

There are few disadvantages of competition in business. It can result in prices being driven down and caused once loved businesses to cease trading but there are ways to combat this which we’ll come onto later.

Competition is the cornerstone of capitalism so without it, your business would look completely different.

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 really 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 to improve your competitiveness is to invest in your business. Train your staff so they have the tools to go the extra mile, educate yourself so you know exactly what your customers need, 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 undoubtedly gives you a competitive edge.

Expansion is also another way to stay competitive. By doing that you’ll 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?

If you’re looking to gain a competitive edge and secure business finance to expand or invest in your business, get in touch with Esme today. We offer unsecured business loans ranging from £10,000* to £250,000. Find out about how to apply for an Esme loan or get an instant quote now.

*£25,500 for sole traders.