Compare direct rivals with workarounds, internal labour, substitutes and doing nothing to understand pricing, trust standards and why customers may not switch.
Short answer: Direct competitors matter most for understanding the price, proof and delivery standard customers already expect. Indirect competitors matter more for explaining why many customers never buy the category at all. Research both equally at first: three close providers and three current substitutes, including internal work or doing nothing. If most qualified buyers use a workaround rather than a provider, your main sales challenge is switching behaviour, not beating a rival's feature list.
A direct competitor offers a similar result through a recognisably similar service or product. An indirect competitor gives the customer another way to live with, reduce or remove the problem.
The distinction is made from the customer's decision, not your industry label. A spreadsheet, spare staff time, replacement purchase or delay can compete more strongly than the provider whose website resembles yours.
Use the Choice-Substitution Test
The Choice-Substitution Test maps every option a customer used or seriously considered during the last real problem event.
- Direct provider: Definition: Similar buyer, result and delivery method; What to learn: Price, scope, proof and expected service
- Indirect provider: Definition: Different service or product produces an acceptable result; What to learn: Which outcome the buyer actually prioritises
- Internal workaround: Definition: Customer uses staff, equipment or a manual process; What to learn: Hidden cost and valued flexibility
- Delay or acceptance: Definition: Customer waits, reduces standards or absorbs loss; What to learn: Whether the problem is worth solving now
Ask about the last purchase or workaround. Hypothetical alternatives expand endlessly. Actual behaviour reveals what the buyer trusted enough to use.
Use direct competitors to learn the category standard
Direct providers show what customers recognise as a purchasable offer. Compare result, price structure, lead time, evidence, risk terms, location and customer type.
Do not assume every common feature is necessary. Some exist because providers copy one another. Verify which points buyers mention during selection and which appear only in marketing.
Direct competition can confirm budget and demand, but it can also hide concentration. Three providers may serve one narrow high-value segment while the customers you want use a different route.
My view is that founders over-research direct competitors because they are easy to find. The fourth similar website usually teaches less than one detailed conversation with a customer who decided not to hire any of them.
Use indirect competitors to understand non-purchase
Indirect options often win on familiarity, control or low perceived risk rather than superior results. A manager may keep a flawed spreadsheet because it is transparent and requires no approval. A consumer may replace an item rather than arrange repair because timing is certain.
Map the complete alternative cost:
- Paid cash
- Staff or personal time
- Delays and quality reduction
- Failure and correction
- Switching and approval effort
- Risk the customer retains
Do not exaggerate internal time by applying a high hourly value without showing what work is displaced. Use the customer's employment cost or actual opportunity where available.
An indirect option that appears inefficient may remain rational. Your offer can cost less in cash and still lose because migration, dependency and trust create a larger first-month burden.
Treat doing nothing as an active choice
Doing nothing has a result: the customer accepts a cost, delays it or judges every available response worse. Ask who bears the consequence and what would make inaction unacceptable.
Triggers can include a missed deadline, contract requirement, staff departure, customer complaint or volume threshold. Without a trigger, the buyer may agree with your value case and postpone indefinitely.
Do not manufacture urgency. Segment prospects by genuine triggers and test commercial response. If no event moves the problem into a budget, direct competitors are not the main obstacle.
Compare switching, not just outcomes
For each option, list what the customer must stop, learn, transfer and risk. A direct competitor may be easier to switch to because the category and contract are familiar. Your novel method may require more explanation even if it performs better.
Use: First-period customer gain = current alternative cost removed minus your price minus transition cost
The first period may be a month, job or annual cycle. Show the later steady-state gain separately. Buyers with limited cash or time often decide from the transition period.
Where your offer replaces regulated work, safety checks or professional judgement, do not treat it as an ordinary workaround. Confirm responsibilities and requirements with qualified local professionals.
Worked example: Kiran's gym maintenance-scheduling service
Kiran considers a maintenance-scheduling service for independent gyms. Direct competitors charge around £220 a month in his example research, often within broader facilities support. The more common indirect competitor is a manager using a spreadsheet and reacting to missed dates.
One gym's manager spends eight hours a month checking service dates and contacting suppliers. The gym values that time at £24 an hour: 8 × £24 = £192 a month.
Over the previous year, missed scheduling contributed to four emergency call-outs that cost £480 more in total than planned visits would have cost. Averaged monthly, that is: £480 divided by 12 = £40 a month.
The documented indirect alternative therefore costs £192 + £40 = £232 a month.
Kiran charges £180. The manager must still spend two hours reviewing exceptions, worth 2 × £24 = £48. Customer cost with Kiran is £228, creating only £4 monthly saving.
That is too thin to justify switching on cost alone. If a different gym's emergency premium were £1,920 a year, monthly current cost would be £192 + (£1,920 divided by 12) = £352. Customer cost with Kiran remains £228, producing £124 estimated gain.
Kiran's delivery uses £20 cash and four hours valued at £30: £180 minus £20 minus (4 × £30) = £40 economic surplus.
The indirect competitor reveals the correct segment: gyms with documented missed-service cost, not every gym using a spreadsheet. Direct rivals still define the trust and responsibility standard Kiran must meet. His £40 surplus is thin, so acquisition and exceptions require further testing.
Research the customer's sequence
Customers can move from doing nothing to internal workaround, then direct provider, without considering every option simultaneously. Ask what triggered each change and why the previous option stopped being acceptable.
This sequence can identify an entry offer. A paid assessment may be easier to buy than complete replacement, provided it has independent value and clear scope. Do not use a low-risk entry to conceal future cost.
Record lost alternatives as well as the winner. A buyer choosing a direct provider over internal work can tell you which proof mattered. A buyer returning to the spreadsheet can expose implementation cost that competitors ignore.
Related guides
Run six alternative interviews in seven days
Choose three recent customers who hired a direct provider and three qualified customers who used an indirect option or did nothing. Reconstruct the last decision and its costs.
Then act in this order:
- Map trigger, choices, buyer and final outcome.
- Calculate current alternative cost and transition effort.
- Separate category-standard proof from copied features.
- Define a segment where first-period customer gain is positive.
- Present one paid offer against the real alternative, not an imaginary rival.
Your competitor is the option customers choose. Let their behaviour define it.
Frequently asked questions
Is doing nothing really a competitor?
Yes. It competes for the customer's money, attention and willingness to change. Doing nothing can be rational when the consequence is small, uncertain or owned by nobody, or when every solution creates greater risk. Calculate the accepted cost and identify the trigger that would change the decision. Do not treat inaction as ignorance. The exception is a mandatory legal or safety requirement where doing nothing may be unlawful or irresponsible. Confirm the current obligation with authoritative guidance and qualified professionals before presenting a commercial solution.
How do I find indirect competitors?
Ask customers what they did the last time the problem occurred, what else they considered and what happened when they delayed. Observe internal labour, manual records, replacement purchases, freelancers, bundled services and reduced standards. Search the problem and desired result, not only your category name.
The exception is a new problem customers have not encountered before. Use an analogous workflow cautiously, but require a paid test because no established behaviour exists. Avoid inventing substitutes from your desk when a recent buyer can name the real ones.
Are direct competitors stronger evidence of demand?
They are strong evidence that some buyers recognise and fund the category. Their sales do not prove your intended segment buys, that the market has room or that your economics work. Indirect spending can be equally strong when customers allocate substantial staff time or cash to another method.
Compare actual behaviour and buyer triggers. The exception is a formal market where contracts or regulation require an approved provider category. Direct competition then carries additional structural importance, but you must verify requirements and your ability to qualify.
Should I price below an indirect workaround?
Not automatically. Price must cover your delivery and reflect customer value, risk and transition. A workaround costing £300 in staff time may still feel cheaper than a £250 invoice because the time is already employed and flexible. Show the cash, time and result transparently, then test the intended price. The exception is a narrowly scoped entry offer whose lower cost reduces switching risk without losing money. State later terms so the customer can compare the complete change rather than a temporary discount.
What if customers cannot estimate the cost of their workaround?
Reconstruct the last three instances. Count people, minutes, materials, travel, delays and corrections, then let the customer supply appropriate cost figures. Show a low and high case rather than forcing precision. Check which paid work was displaced. Some consequences, such as safety or reputation, should not be converted into invented cash values. The exception is a formal risk calculation maintained by the buyer, which can be used with permission and proper interpretation. Your role is to expose the mechanism, not produce the largest possible number.
Can an indirect competitor become a partner?
Yes, when the offers complement one another and responsibilities, customer consent, economics and conflicts are clear. A repair shop might support collection, or an internal team might use an external specialist for exceptions. Test whether partnership lowers acquisition or improves delivery without making you dependent on one gatekeeper. Record who owns the customer relationship. The exception is a regulated referral or arrangement involving customer data, commissions or professional independence. Check current sector and local rules, disclose material interests and use qualified advice before formalising it.
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