A definition of a competitive environment

Table of contents
  1. What does a competitive environment mean?
  2. Types of competitors 
  3. How to conduct an analysis of the competitive environment
  4. Examples of a competitive environment
What does a competitive environment mean?

In this article, you will learn about types of competitors, tips on how to analyze a market, and some examples of the competitive environment. But let’s start with a very important question: what is a competitive environment?  

What does a competitive environment mean?

To explain this term, we need to understand the industry competition definition. For example, if you own a gas station, you need to compete with other representatives of the market in order to reach more clients. In this case, the competition is within the gas service station industry.

Competitive environment is the result of interaction of a large number of market participants, which determines the appropriate level of economic competition and the possibility of influence of different entities on the general market situation. It is important that the competitive environment is formed not only by the actual market participants, whose interaction causes rivalry, but, primarily, by the relationship between them.

Types of competitors 

There are 5 main types of competitors in marketing. Let’s have a closer look:

1. Direct competitors

Companies which offer similar products or services to those you do, are located in the same location as you, and target the same audience are your direct competitors. In other words, two or more enterprises are competing to reach similar goals.

2. Potential competitors

They may not conduct business in the relevant market at the moment, but have an opportunity to enter it. They also pose a threat to a business, which can be reduced by creating entry barriers for new companies. 

3. Indirect competitors

Let’s imagine visitors of a mall. They enter a building with a limited amount of money, and they can buy anything. So, all the shops there are indirect competitors: They sell completely different products, but they compete for the attention of the same visitors.

4. Future competitors

They are similar to potential ones, but they are more likely to enter your market area. It could be a huge international business which has recently started entering neighboring countries.

5. Replacement competitors

If there is a product or service on the market that solves the same problem as yours do, but in a different way, they are your replacement competitors. The thing is that if a customer prefers your product, he or she won’t need to go to your rival. That's why you need to do everything to please your customers.

How to conduct an analysis of the competitive environment

It is essential to analyze your competitive environment and your rivals’ activity in such situations:

  • when you are going to offer a new product or service or develop an old one;

  • when you need to monitor price in order to determine the new price;

  • when you create a marketing strategy or a sales plan.

Methods to analyze your competitive environment

We’ll show just the most popular ones:

SWOT Analysis

It is a handy tool to help assess business strengths and weaknesses, development opportunities and threats. You may compare this data to your competitors and set your next steps.

Porter’s Five Forces

This model identifies five competitive environmental forces which affect the company’s position in the market: The power of buyers and suppliers, the threat of invasion of new entrants, the threat of substitutes, the level of intra-industry competition. It is convenient to use a system of points to estimate the influence of this or that force.

Strategic Group Analysis 

This method is suitable for comparing your company with major competitors and it also uses a scoring system. You need to identify criteria for comparison and score points for yourself and other companies. After that, a diagram is drawn which allows you to clearly assess different competitive factors in the business of yours and each competitor. 

Growth Share Matrix

If you want to make it clear if goods or services are worth investing in due to their growth potential and market share, you may use this approach. Businesses can be placed into one of four quadrants, each of which has a separate strategy. For example, products that have a huge potential to grow and get high market share are called stars. It is advised to invest a lot in such products.

Perceptual Mapping 

You may create a visual representation of how people perceive your product compared to existing alternatives on the market. The results should be used to your advantage: to introduce something new and make a plan of changes. It is also an opportunity to optimize advertising.

Examples of a competitive environment

Let’s consider the competitive environment example in the fast food industry. For example, McDonald’s is one of the most popular restaurants in the world. KFC, Burger King, Subway, Popeyes, and others are among their competitors and they need to come up with interesting ideas to engage more customers.

Another global competition example: Electric cas. As eco lifestyle is becoming more and more popular and electric energy is cheaper than gas, people tend to buy electric cars. Therefore, a lot of car manufacturers offer different models for them to choose according to their needs.

There is also a huge competition in the electronics field. Huge companies, like Apple or Samsung, are always in need of implementing new technologies to keep up with the times and make people buy their product. Lots of us are often looking forward to presentations of something new. And they have to do their best to remain attractive even to the most picky customers.

Of course, your business may appear in various situations and in competitive environments of other industries. You just need to distinguish those differences, prepare a strategy and be ready to adapt to changing conditions, such as market demands, law changes or people's attitudes.

Liubov Zhovtonizhko_Photo
Liubov Zhovtonizhko Copywriter at Stripo
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