We market products in such a competitive world that we often dream of being a monopolist, and having a market to ourselves. Then why the question of whether competition is a good thing?
Actually, these days the typical answer ("yes") is based on the idea that competition fosters innovation (the Microsoft trial puts an emphasis on this explanation). Independent of whether competition drives innovation, however, is the fact that many companies actually need competition just to survive. How is this so?
The first important concept to understand here is the concept of primary and secondary demand.
PRIMARY AND SECONDARY DEMAND
Primary demand for a product is the total demand for all brands in a product category. For example, the category may be specialty coffees or personal digital assistants or customer relationship management software.
Primary demand would sum up all the brands competing in each of these categories. Continuing our examples, this would include Starbucks and Peets (for specialty coffee), Palm Pilots and Handspring (PDAs), and Siebel and Oracle (CRM).
Secondary demand is the demand for a given brand in a category. If you're, say, Handspring, your secondary demand is the demand for the Handspring PDA. Creating secondary demand is what we talk about when we say "brand competition" â€“ competition for one brand over another.
When breaking open a new product category like PDAs, your first job is to create primary demand, not secondary demand. To see this, consider the following example.