An indirect competitor is a business that sells a different product or service from yours but meets the same customer need. A plumber's direct competitor is the plumber across town. Their indirect competitors include the $10 bottle of drain cleaner, the handyman, and the home warranty company the homeowner already pays every month.
Indirect competitors are easy to miss because they don't look like you. They still take the job, and often they take it before the customer ever searches for someone like you.
Key takeaways
- Direct competitors sell the same thing to the same customer. Indirect competitors sell something different that solves the same problem.
- For most service businesses, the biggest indirect competitor is the customer deciding to wait, or to do it themselves.
- You find indirect competitors by asking customers what they tried first and by searching the problem your service solves.
- You beat them by making the case against the alternative, and by being easier to buy than it is.
What is an indirect competitor?
An indirect competitor offers a different product or service that satisfies the same underlying need as yours. The customer isn't comparing the two of you feature by feature. They're choosing between two different ways to get the same result.
The classic example is a movie theater and a streaming service. Both sell an evening's entertainment. A theater's direct competitor is the theater down the road, and its indirect competitor is Netflix on the couch.
Direct vs indirect competitors
The difference comes down to what the customer is comparing.
- Direct competitors sell the same product or service to the same customers. Two HVAC companies in the same county are direct competitors, and the customer compares price, reviews, and who can come out today.
- Indirect competitors sell a different product or service that meets the same need. A window air conditioner from a big-box store competes with a central air repair, even though one is a product and the other is a service call.
Direct competitors fight over the customer after they've decided what to buy. Indirect competitors fight over what the customer decides to buy in the first place, which is why they often win before you know there was a contest.
The four types of competitors
One common way to sort competitors uses four groups:
- Direct competitors: the same product for the same customer.
- Indirect competitors: a different product for the same need.
- Replacement competitors: anything that takes the same budget, even for an unrelated need. The homeowner who puts $8,000 into a kitchen this year instead of a new furnace chose a replacement.
- Potential competitors: businesses that could enter your market, such as a national franchise opening a location, or a private-equity-backed rollup buying the shop down the street.
The first two get most of the attention. For a local service business, the last one often matters more than it gets credit for.
Examples of indirect competitors
Well-known examples
- Coca-Cola's direct competitor is Pepsi. Its indirect competitors include coffee, tea, bottled water, and energy drinks, since anything a thirsty person reaches for instead counts.
- A gym's direct competitor is another gym. Its indirect competitors are home fitness equipment, running apps, and the free trail behind the neighborhood.
- A taxi company's direct competitor is another taxi company. Its indirect competitors are rideshare apps, public transit, and a bike.
Home service examples
Indirect competition gets expensive in home services, because many repairs are optional until they aren't.
- Plumbing: drain cleaner from the hardware store, a handyman, and DIY videos.
- HVAC: window and portable units, space heaters, and the home warranty plan that sends its own contractor.
- Electrical: handymen taking on small jobs, and solar or EV charger installers who include panel work in their quote.
- Water damage restoration: rented fans and a shop vac, or the plumber who fixed the leak and offers to dry it out.
- Mold inspection: the $15 home test kit, and the homeowner deciding the smell isn't that bad.
In every case the strongest indirect competitor is the same: doing nothing for now. A furnace that makes a noise, a slow drain, and a stain on the ceiling all compete with the customer's hope that it'll sort itself out.
How to identify your indirect competitors
You won't find indirect competitors by searching for businesses like yours. Look at the problem from the customer's side instead.
Ask customers what they tried first
Add one question to your intake script: "What did you try before you called us?" Within a few weeks you'll have a list of your real indirect competitors, ranked by how often they come up.
Search the problem, not your service
Search the way a homeowner does before they know they need you: "water in basement," "AC blowing warm air," "breaker keeps tripping." What ranks is what your customers see first. Often that's DIY videos, retailer pages, and warranty companies, with no local contractor in sight.
Read reviews, including your competitors'
Reviews often say what the customer tried before they hired someone: "We tried a drain snake ourselves first." Read your own, and read your direct competitors' reviews too.
Look at the jobs you lost to nobody
Go back through the quotes and calls that went nowhere. If the customer didn't hire a competitor, they chose an alternative, and that alternative is an indirect competitor.
Our competitor analysis guide covers how to research direct competitors, and the free competitor analysis template has room for indirect ones too.
How to compete with indirect competitors
You can't out-advertise a bottle of drain cleaner. You win against indirect competitors by changing what the customer is weighing.
Make the case against the alternative
Your marketing probably explains why you're better than the plumber across town. It should also explain why you're better than the alternative. Say what a home mold test can't tell you, or what happens to drywall that's dried with box fans. Specific, honest comparisons work better than warnings.
Be easier to buy than the alternative
DIY and doing nothing both win on convenience. Close the gap: answer calls and forms within minutes, show price ranges on your site, offer financing on larger jobs, and let people book after hours. Each step you remove is one less reason to reach for the alternative.
Show up when they search the problem
Create pages and short videos that answer the problem searches above. If your page explains why the breaker keeps tripping, the homeowner meets you before they reach the hardware store.
Partner where it makes sense
Some indirect competitors make good referral partners. A plumber who finds a leak isn't usually equipped to dry out a basement, and a restoration company isn't there to fix the pipe. A referral arrangement turns a competitor into a source of work.
Watch the price gap
When the alternative is cheaper, the question is whether what you deliver justifies the difference. Our guide to monitoring competitor pricing shows how to keep track, and price vs non-price competition covers when to compete on something other than price.
Why indirect competitors matter more for smaller companies
A national brand can afford to lose some customers to alternatives. An independent service business usually can't, and indirect competitors are where much of the lost work goes. They're also where bigger direct competitors tend to be slowest, because their marketing is usually aimed at each other. If you're the one who explains the problem, gives the honest comparison, and answers the phone first, you can win jobs that never reach the franchise down the street.
