Understanding ‘Industry’ and ‘Competition’ in Simple Terms
Too many beginners start analyzing competition without first clarifying what they’re actually observing. They jump straight into “Who’s my biggest rival?” without asking: what exactly is an industry? This confusion often leads to flawed conclusions—drawing insights from the wrong group of businesses, misjudging threat levels, or overlooking hidden competitors. The root issue? A fuzzy definition of “the market.”
After two decades guiding students and professionals through strategic analysis, I’ve found that the single most common mistake is treating “industry” and “competition” as interchangeable. But they’re not. One is the ecosystem. The other is behavior within it.
This chapter gives you clear, real-world definitions and examples to ground your thinking. By the end, you’ll know exactly how to identify an industry, recognize real competition, and avoid the trap of comparing apples to oranges. You’ll learn how to answer: what is an industry? and what is competition meaning for beginners?—with confidence.
What Is an Industry? A Simple Definition
An industry is a group of companies that produce and sell similar goods or services. It’s not about how large a business is or how famous its brand. It’s about the function of what they offer.
Think of an industry as a shared ecosystem. Members are connected by the product or service they deliver, regardless of their size, location, or branding.
For example, when you think of “fast food,” you’re thinking of an entire industry. McDonald’s, Burger King, Wendy’s, and even local burger joints—these are all part of the same industry because they serve similar food in similar ways.
Key Characteristics of an Industry
- Companies offer products or services that fulfill the same basic customer need.
- They face similar inputs: ingredients, labor, packaging, delivery systems.
- They often operate under similar regulations: health codes, food safety laws, labor rules.
- They compete for the same customer attention and budgets.
When analyzing a market, the first step is to draw a clear boundary around the industry you’re studying. This isn’t always obvious. For instance, is “coffee shops” an industry? Yes. But is “coffee” an industry? Also yes—but with a broader scope.
Competition Meaning for Beginners: Beyond Just Rivals
When people say “competition,” they often mean “the company I’m most like.” But in strategic analysis, competition goes beyond direct rivals.
Competition describes any entity that satisfies the same customer need, even if it doesn’t offer the same product.
Take the smartphone market. Apple and Samsung are direct competitors. But what about a tablet, a smartwatch, or even a high-end calculator? If a customer is deciding between buying a new phone or upgrading to a fitness tracker, both are competing for the same budget and time.
This is where many beginners trip up. They miss that competition isn’t only about who sells the same thing—it’s about who shares your customer’s wallet.
Two Types of Competition You Must Distinguish
Understanding competition means separating two types:
1. Direct Competition (Rivals)
These are businesses that offer nearly identical products. Same function, same target audience, same price range.
Example: Chipotle vs. Qdoba in the burrito market.
2. Indirect Competition (Substitutes)
These offer different but functionally similar solutions. They may not be in the same category, but they compete for the same customer spending.
Example: A movie streaming subscription (Netflix) competes with a night out at a theater—both offer entertainment and cost around $15–$20.
Real-World Example: The Fashion Industry
Consider the world of fashion. A clothing brand like Zara operates in the fast-fashion industry. But so do H&M, Uniqlo, and Shein.
At first glance, all these brands seem to compete directly. But their models differ. Zara focuses on trend-driven, limited releases. H&M offers cheaper, mass-market versions of runway styles. Uniqlo emphasizes functional, high-quality basics.
So, are they all in the same industry? Yes. But their competitive focus varies. Zara’s competition isn’t just H&M—it’s also the time and money a customer spends on social media scrolling, or buying a pair of jeans from Levi’s.
When you ask: what is an industry?—you’re asking: what category of products or services are we analyzing? When you ask: what is competition meaning for beginners?—you’re asking: who or what is vying for my customer’s attention and money?
Quick Exercise: Identify the Industry and Competitors
Try this with your favorite product:
- What need does it fulfill? (e.g., convenience, comfort, entertainment)
- What other products or services meet that same need?
- Which ones are direct competitors? Which are indirect?
- Are there any hidden substitute options?
Doing this regularly builds a habit of strategic thinking. You’ll stop reacting to trends and start understanding the deeper forces shaping a market.
Common Misconceptions About ‘Industry’ and ‘Competition’
Even experienced analysts get tripped up by these myths. Here are the most common ones—and how to avoid them.
| Misconception | Correct Understanding |
|---|---|
| Only big brands are in an industry. | Size doesn’t matter. A local café is in the same industry as Starbucks. |
| Competition means only companies with the same name. | Competition includes anyone whose product satisfies the same need—regardless of branding. |
| Industry is defined by geography. | It’s defined by product function. A restaurant in Tokyo and one in Toronto are in the same industry if they serve similar food. |
| Substitutes don’t count as competition. | They do—especially when pricing, convenience, or customer preferences shift. |
These errors often stem from thinking too narrowly. The key is to step back, ask: what is the customer really buying? Then expand your view to all alternatives that serve that purpose.
Why This Matters for Your Five Forces Analysis
Getting the industry right is the foundation of Porter’s Five Forces. If you misidentify the market, every other force will be off.
For instance:
- Underestimating substitute products? You’ll miss a major threat.
- Overlooking indirect competitors? You’ll misjudge buyer power.
- Defining the industry too narrowly? You’ll ignore new entrants who operate at the edge of the market.
Once you grasp what is an industry and what competition means for beginners, you’re not just doing analysis—you’re doing it correctly.
Frequently Asked Questions
What is an industry in simple terms?
An industry is a group of companies that sell similar products or services to meet the same customer need, regardless of size, brand, or location.
What is competition meaning for beginners?
It refers to any business or product that competes for the same customer attention, budget, or time—even if it’s not in the same product category.
Is a coffee shop and a fast-food restaurant in the same industry?
Yes, if they serve similar quick meals or snacks. But they may differ in how they compete—some focus on food quality, others on speed or affordability.
Can a substitute be a competitor?
Yes. A substitute product can become a direct or indirect competitor because it satisfies the same need. For example, a video call app competes with in-person meetings for time and attention.
How do I avoid confusing competition with industry?
Ask: “What need does this product fulfill?” Then list all alternatives that serve that same need. That list defines your full competitive landscape.
Why do some people say ‘the industry’ but mean ‘a company’?
This is a common misuse. “Industry” refers to the entire market. Always check whether a speaker is referring to the whole ecosystem or just one firm. Confusing the two leads to flawed analysis.
