What is a competitor? Definition and a three-part test

A competitor is any business, product or option your customer could choose instead of you, to get the same job done with the same money. That includes the shop selling the same thing, but also the different product, the free tool and the "we'll just do it ourselves" that quietly wins most of the deals you never hear about.

The dictionary competitor meaning is narrower: someone selling a similar product in the same market. That definition is why most competitor lists are wrong. It describes companies that look like you, not the choices your customers actually weigh.

What counts as a competitor: the three-part test

Ask three questions about any name on your list.

Same customer. Would the same person, with the same problem, consider both of you? A wedding photographer and a passport photo booth both take photos. No couple has ever shortlisted both.

Same job. Do you solve the same problem, even in a different way? A bookkeeper and a bookkeeping app both answer "my numbers need to be right by the tax deadline".

Same budget. Is the money coming from the same pot, at roughly the same time? A $3,000 kitchen refit and a $3,000 holiday are different products competing for one decision.

A business that passes all three is a competitor in the full sense. Passing two still counts, it just makes them a different kind of competitor. Passing only the first usually means a potential partner, not a rival.

Say you run a yoga studio. Here is how the test sorts the names around you.

The labels for each row (direct, indirect, substitute, budget and potential) are explained with examples on the types of competitors page.

Real examples of the wider definition

Netflix and sleep. Netflix's then chief executive Reed Hastings said more than once in 2017 that the company was competing with sleep. It was half a joke, but it is the budget test applied to time: the evening hours are the scarce resource, and anything that fills them is a rival.

Coca-Cola and PepsiCo. The textbook case of a competitor in the narrow sense. Same customer, same job, same shelf, same price. Most businesses have one or two rivals like this and spend all their attention on them.

Amazon and the US drugstores. In June 2018 Amazon agreed to buy the online pharmacy PillPack, and in November 2020 it launched Amazon Pharmacy. A company that had not sold prescriptions became a competitor to every pharmacy chain. Nobody's competitor list in 2017 would have included it, which is the point.

Why your competitor list is probably wrong

It is the list you think about, not the list you lose to. Founders name the rivals they admire or resent. The names that come up in lost sales are often different, and smaller. The guide to finding your real competitors compares four sources and what each one misses.

It leaves out doing nothing. In many sales, the option you lose to most often is the buyer keeping things as they are. It never appears on a slide because it has no logo.

It includes giants you cannot compare yourself to. A company a hundred times your size is worth watching for ideas, not for benchmarking.

It is out of date. Rivals pivot, close and appear. A list written two years ago is a record of who mattered then.

It confuses search competitors with commercial ones. A directory or a magazine can outrank you for every term you care about without ever selling a thing. That is a real problem for your traffic, but a different problem from losing a customer.

How to use the definition

Run the test on every name you can think of, then split the results.

1. The three to five that pass all three tests. Watch these closely: their prices, offers, ads and new pages.
2. The ones that pass two. Check them quarterly. This is where surprises come from.
3. Everything else. Drop it, and write down why, so nobody adds it back in six months without a reason.

Then put the names somewhere you will reuse them. A one page competitor analysis template is enough for most small businesses. If you need to see where every player sits relative to the others, a competitive matrix is the next step.