I think that people often avoid this for two reasons: they don't want to give competitors free advertising, and they don't want to risk people thinking "if this new thing is like this old thing, I'll just stick with the tried-and-true old thing".

IANAL, but in the US, I am not aware of a legal downside as long as you're careful about trademarks. You can use other people's trademarks in ad copy, for instance, as long as you don't do so in a way that could cause consumer confusion (people thinking that the company whose trademark you used is in some way connected with your product.)

Thanks! In my case the competitor is much better known and I think nearly all my potential customers would know what they do. Great point about people not wanting to switch if they think you're the same!

I would add another thing to my comment regarding the use of other people's trademarks: If you do so, the odds are good that the company whose trademark you've used will notice. Even if your use is entirely legal, you might still get sued and have to defend that use in court. Whether or not that risk is worth it is a call only you can make.

Because of the extra attention such a use would get, I would certainly run it by an IP lawyer first to make doubly sure that I was on solid legal ground.

If your competitor is much more well known AND your product is superior to theirs and you are at the beginning of your journey there is no downside. Using their name will help ppl get what you do and help you get in front of the right audience.

Once you are a more established company, though, you really need to be able to describe your offering and differentiation independently of other companies.