Direct competitors are firms that offer products and services that are functionally the same. This form of competition requires companies to develop advertising campaigns that make their products stand out for consumers because they are not offering unique products that appeal to specific niches. Success for companies in this position is determined by the percentage of the market share for a given product or service they can capture. Other types of competition include substitute competition and budget competition.
Typically, the products and services produced by direct competitors are priced similarly and may be advertised and merchandised in similar ways because they are designed to appeal to similar demographics. Companies can attempt to distinguish what they are selling with quality, reliability, and other product characteristics in the hopes of giving consumers a reason to choose their product over that of the competitor. Creative campaigns can utilize a variety of media and tactics to attract the attention of potential customers.
Sometimes competition can become fierce. Direct competitors may become involved in price wars, eventually dropping their prices so low that they are barely breaking even on key products and services. Price wars are sometimes justified with the argument that the price war draws in customers and encourages them to encourage other products from the same company. This ensures that the company realizes a profit, while the competitive pricing keeps customers loyal and may lead them to recommend the product to other people.
Companies competing for the same niche can use many different advertising techniques to capture market share. This can include utilizing advertising clout to flood the market with promotional materials that drown out messages from the competition, as well as challenging the quality, reliability, or features of the competition's products. Direct competitors may also attempt to change the way people think about their products by advertising their products and services in a way that is designed to appeal to a specific subset of a demographic, such as people who pride themselves on having good taste or being on the cutting edge of technology or fashion, for example.
Economists theorize that competition in general keeps markets healthy. Direct competition, in particular, can lead to rapid innovation as companies are constantly forced to redesign their products and services to keep them fresh and new in the eyes of consumers. This can lead to improvements in related products. The constant development of new features for existing products by direct competitors can also lead to the invention of spinoff products that produce more revenues for the parent company.