Threat from Substitute Products

A substitute product is a good or service produced by another industry which satisfies the same customer needs.

Substitutes are always present but they can be easy to overlook because they may be very different from the industry’s product (example video conferencing could be a substitute for business travel).

When the threat of substitutes is high, industry profitability suffers.

Substitute products or services limit an industry’s profit potential by placing a ceiling on prices (because buyers will switch to the substitute of it offers a better value alternative).

The threat of a substitute is high if:

(a) it offers an attractive alternative to the industry ‘s product in terms of price and performance.

(b) The buyer’s cost of switching to the substitute is low.


(source: BPP Learning Media)



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