Most Fridays, I usually answer a question or questions from Principles of Marketing students about marketing. This Friday, though, I am breaking from that pattern to answer a question from a Retail Management student. This week’s question: When dealing with competitors or when examining competitors, we talked about any business located near our client as a possible competitor. This view seems too broad because not every business competes against our client. How do you know who your competitors are?
Several approaches exist to classify or determine your competitors including cluster analysis and multidimensional scaling. The below typology fits well when dealing with service firm such as a food retailer. This website provides additional discussion while this blog post gives an example drawn from higher education. The typology classifies competitors into six forms based on buyer needs and competitors' processes to fill those needs, including:
- Direct competitors: Those competitors that fill the same buyer needs you fill in the same way that you fill them;
- Alternative use competitors: Those competitors that fill different buyer needs but do so in the same way that you fill your buyers’ needs;
- Substitute competitors: Those competitors that fill the same buyer needs you fill but fill them in a different way;
- Economic competitors: Those competitors that fill neither the same buyer needs you fill nor use the same ways but do compete for the same buyer budgets;
- Complements: Those sellers with which you cooperate to fill buyer needs but then compete for the larger proportion of buyer expenditures;
- Buyers: The propensity and ability of buyers to fill their own needs
This classification system should involve over time, consistent with R-A theory. Also, it could be extended to other service providers in the fast casual market, financial services market, or the vending/grocery market.