Entrepreneurship and Small Business (ESB) Certification Practice Exam

Which type of competitor offers products or services that are similar to another business?

1. Direct competitor

2. Indirect competitor

3. Substitute competitor

4. Virtual competitor

The correct answer is: Direct competitor

The concept of direct competitors refers to businesses that offer products or services that are essentially the same, targeting the same customer base. In this scenario, direct competitors compete for the same customers and market share, providing similar value propositions or solutions to the same problems. For instance, if you operate a coffee shop, other local coffee shops would be considered direct competitors because they offer the same type of product—coffee— and aim to attract the same clientele. While indirect competitors may sell different products or services that fulfill similar needs, they do not offer the same type of experience or product. Substitute competitors refer to alternatives that fulfill the same consumer need but do so with a completely different offering. Virtual competitors typically refer to online or digital platforms that may compete in a different space or channel. Each of these types varies in how closely they align with the offerings of a direct competitor. Understanding direct competition is crucial for developing effective marketing strategies, pricing models, and product differentiation in order to gain a competitive edge in the market.