"Who are your competitors?" sounds like a simple question. The answer depends on the level at which you look. A premium gym competes with other premium gyms, with budget gyms, with yoga apps, and with the customer's decision to go running instead. Each group needs a different response.
Marketing textbooks describe these levels in several ways. The four-group version below is practical for small and mid-sized businesses.
Direct competitors
Direct competitors sell the same kind of product or service to the same customers in the same market. They are the businesses you lose deals to.
- A dental clinic's direct competitors are other general dental clinics within a reasonable travel distance.
- An organic skincare brand's direct competitors are other organic skincare brands selling through the same channels at similar prices.
- A project management tool's direct competitors are other project management tools aimed at the same team size.
How to analyse them: in depth. Score them on every criterion, compare prices on the same benchmark, map features, read their reviews and build a battlecard for the strongest ones.
Indirect competitors
Indirect competitors sell a different product to meet the same underlying need, or the same product to a neighbouring segment.
- For a specialty café: a national coffee chain, a bakery with a coffee counter.
- For a boutique hotel: serviced apartments and homestays.
- For accounting software: an accountant who includes bookkeeping in a monthly fee.
How to analyse them: track positioning and price. They set customers' expectations of value even when they are not your closest match.
Substitutes
Substitutes solve the need in a completely different way. They include do-it-yourself and doing nothing.
- For a cleaning service: the customer cleaning at home.
- For a CRM: a spreadsheet.
- For a cinema: streaming at home.
Substitutes matter most when switching is easy and cheap. Porter's Five Forces treats them as a separate force for this reason (see our Five Forces guide).
How to analyse them: understand why customers choose them. Usually the answer is price, convenience or habit. Your marketing has to answer that directly: "cheaper than hiring", "faster than a spreadsheet".
Aspirational competitors
Aspirational competitors are leaders you do not compete with today but want to learn from, or might compete with later. A regional clothing brand might study a national brand's merchandising; a local agency might study an international agency's content.
How to analyse them: borrow practices, not strategy. Their scale, budgets and brand make their tactics hard to copy directly.
A quick classification test
Ask three questions about each business:
- Does it sell something that does the same job for the customer? (Yes: direct or indirect.)
- Does it target the same customer, in the same place, at a similar price? (Yes to all: direct.)
- Would a customer consider it on the same day they consider you? (No: aspirational.)
If the answer to question 1 is "no, but the customer could skip both of us and do this instead", it is a substitute.
Why the distinction changes your strategy
The FindRivals threat matrix weights direct competitors most heavily when estimating threat, because they overlap most with your customers. But the biggest long-term risks often come from indirect players and substitutes growing fast: the delivery-only kitchen, the app that makes a service unnecessary. Track them with a lighter touch, but track them.
A perceptual map that includes all four groups is a good way to see the whole market at once.