Learning how to identify your competitors is important to the business especially during the development of the business plan. To maintain your competitive edge, you need to understand what your competitors are doing, and how to run your business in this competitive environment.
If you run a profitable business, you compete to win. If your business is not profitable, you are competing for scarce resources, usually funding. In all cases, you need to know who you are trying to win so you can put yourself properly. Regardless of the type of market you want to target, it is likely to face three categories of competitors:
Direct competitors:
They are the most important category as they are the most competitive where they offer products and services similar to what they offer to a large extent. This will create a competitive environment for you to become the weakest link if you do not equip yourself with a plan that will necessarily win your competitors' customers and attract new customers to your products or services.
Indirect competitors:
These companies offer alternative products and services for your offerings. Do not worry about these companies too much, but stay informed about what they do. Sometimes the indirect competitor may become a direct competitor.
Substitutes or new entrants:
During your market research, you should determine whether there are new alternative or potential new products. An alternative product is anything that offers the same set of benefits to your customers as you do, but is not considered a competing product. For example, a DVD rental is an alternative service to cable TV. There can be new companies or entrants that may change your industry entirely as satellite radio has done to the radio industry.
The best way to determine your competitors is to know if you have not competed in the market. Who will provide your customers with products or services to meet their needs, and what will customers buy to solve their problems?