Introduction
Business owners often make a simple mistake: they only look at the competitors who look exactly like them. They focus on the companies selling the same product to the same customer. These are their direct competitors, and they are easy to track.
But the other threat to the business is often the one you don't see coming — the indirect competitor. This is the rival that steals your customers without selling the same product. They compete on solving the same fundamental customer need in a completely different way.
In this article, we will break down the main differences between direct and indirect competitors, show clear examples of both, and share practical tips on how to identify indirect competitors early.
Direct Competitors
A direct competitor is the easiest competitor to find because they operate in the same market, target the same customer, and offer a product or service that is functionally identical or highly similar to yours.
The Definition: Same Solution, Same Need
A direct competitor meets the same customer need with the same type of solution.
Characteristic | Description | Example (The Coffee Maker Market) |
Product/Service | Highly similar or identical | A company selling a drip coffee maker |
Target Market | Attracts the exact same Ideal Customer Profile (ICP) | Customers who want to brew coffee at home |
Customer Need | Solves the same problem in the same way | The need for a hot, brewed cup of coffee in the morning |
Direct competitors are important for tactical decisions like pricing and feature parity. If they drop their price, you feel the impact immediately. However, their moves are predictable because they are playing by the same rules as you.
Indirect Competitors:
They do not offer the same product as you, but they compete for the same customer budget, the same customer time, or, most critically, they solve the same fundamental customer need using a completely different method.
The Definition: Different Solution, Same Need
The key to understanding indirect competitors is focusing on the customer need, not the product itself.
Characteristic | Description | Example (The Coffee Maker Market) |
Product/Service | Functionally different or dissimilar | A neighborhood coffee shop, or a brand that produces energy drinks |
Target Market | May target the same customer, but for a different product category | Customers who need energy/productivity in the morning or throughout the day |
Customer Need | Solves the same fundamental problem using an alternative method | The need for energy and productivity |
How to Find Indirect Competitors
The "Job to Be Done" Framework
The best way to identify an indirect competitor is through the "Jobs to Be Done" (JTBD) framework. This framework asks: what job is the customer hiring your product to do?
Example: A customer doesn't buy a drill for its own sake —t hey acquire it to solve a specific task: creating a hole of the right size in the right place.
Direct Competitor: Another company selling a drill.
Indirect Competitor: A company selling industrial-strength adhesive (solves the need to hang a picture without making a hole).
The indirect competitor is the one that offers a better, cheaper, or faster way to get the job done, regardless of the product category.
Use AI to Map the Customer’s Job
AI is one of the most effective tools for uncovering indirect competitors because it helps you think beyond product categories and focus on the underlying job your customer wants to get done. Instead of manually brainstorming alternatives, AI can rapidly map out the full landscape of solutions — traditional, unconventional, and even emerging — that customers use to achieve the same outcome.
Tools like ChatGPT, Perplexity, or Claude can analyze your market from multiple angles:
the emotional and functional drivers behind the job;
the shortcuts people currently use;
the substitutes they rely on when money or tools are limited;
professional services or offline methods that solve the same problem;
new or trending solutions that don’t yet appear in your competitive set.
How to Do It
To do this, you need a prompt that teaches AI to think like a market analyst: look at direct competitors, analyze indirect competitors, identify substitute solutions, and highlight the different paths customers take when trying to solve the same problem. A well-crafted competitor analysis prompt allows you to reveal competitors you weren’t aware of, understand how users think about the problem, and discover which alternatives truly compete with your solution.
You can start with a simple but extremely effective prompt:
“Act as a competitor research analyst. List all the different ways a customer might try to [achieve X outcome] without using [your product]. Include direct competitors, indirect competitors, substitute products, alternative tools, manual solutions, offline services, and workaround hacks. For each option, briefly explain why a customer might choose it and what job it helps them accomplish.”
Conclusion
Most companies obsess over the closest competitors that look exactly like them — same product, same pitch, same category. But the real competitive advantage comes from understanding the full spectrum of choices your customer has, including the ones that don’t resemble you at all.
Indirect competitors reveal how customers actually think about their problems, the shortcuts they prefer, the trade-offs they’re willing to make, and the jobs they’re truly trying to get done. They broaden your perspective of the problem space, challenge the assumptions you’ve made about your own product, and often highlight opportunities you wouldn’t have spotted otherwise.
FAQ
What is the difference between direct and indirect competitors?
Direct competitors offer similar products or services to the same market. Indirect competitors solve similar customer problems but in different ways. For example, a movie theater competes directly with other theaters. But it also competes indirectly with streaming services, video games, and other entertainment.
How can businesses identify their indirect competitors?
To find indirect competitors, businesses need to look beyond direct rivals. They should analyze customer needs and track alternative solutions. This includes monitoring emerging technologies and understanding how customers meet their needs beyond traditional products.
Why are indirect competitors important in competitive strategy?
Indirect competitors are key because they can disrupt markets with new, innovative solutions. They drive innovation and challenge existing business models. They can slowly take market share by offering compelling solutions that may not seem like threats at first.
How often should a company review its competitive landscape?
Companies should do a deep competitive analysis at least once a year. They should also watch market changes, new technologies, and customer behavior every quarter.
Can a company be both a direct and indirect competitor?
Yes, a business can be both a direct and an indirect competitor in different markets. For example, Apple is a direct competitor in smartphones but an indirect competitor in payment systems, music streaming, and other areas where they offer alternatives.
What tools can help analyze competitive landscapes?
Strategic frameworks like Porter’s Five Forces and SWOT analysis provide a foundation for mapping competitive pressure. Tools such as SEMrush help you assess competitors’ search visibility and keyword strategies.
For a broader view, Outspy offers an all-in-one marketing competitor tracking platform where you can monitor both direct and indirect competitors in one place.
