Overview

A competitive threat is a risk of competition. As with any risk, a competitive threat has a probability to adversely impact and may not be preventable. The following are the basic types of competitive threat.

New Competition
The potential for new companies to take your customers or position in the market. This includes startups and established firms that may expand into your market.

New Products
Improvements to the products and services of competitors in the industry or market.

New Business Models
A new way of adding value that competes directly with your business model.

Substitutes
The ability of competition in different industries to attract your customers. For example, fast food may take business from grocers if they can convince consumers to eat out instead of cook their own food.

Pricing
The potential for a price war in an industry or market. For example, an airline that is charging $500 for a flight suddenly drops the price to $100 sparking competitors to reduce prices until the practice is unprofitable for everyone.

Customer Experience
Improvements to customer experience. For example, the four major airlines all have reasonably low customer satisfaction. One hires a new CEO or CXO who helps customer satisfaction improve every quarter. The others start having to discount more tickets to sell seats as customers start to prefer the experience of the improving airline.

Promotion
There are two bars in a college town with both spending $500 a week on promotion. Suddenly, one starts spending 10x a week on promotion to become the more popular spot. This results in an escalating competitive battle that likely damages both businesses.

Talent
The potential for the competition to recruit your best and most valuable employees.

Intellectual Property
The potential for the competition to develop superior intellectual property such as trade secrets and patents that allow them to outperform or take market share.