THREAT OF

SUBSTITUTES
C

Presented by: Trixie R. Mercader

 Threat posed by substitute
products to an industry
• The substitutes can be defined as the products of other industries
that have the ability to satisfy similar needs.
• Ex: Coffee can be a substitute for tea in the morning as this can
also be used as a caffeine drink.
• The availability of a substitution threat effects the profitability of an
industry because consumers can choose to purchase the substitute
instead of the industry’s product.
Threat of Substitutes – Determining
Factors
• If the consumer’s switching costs are low
• If the substitute product is cheaper than the industry’s product
• If the substitute product is of equal or superior quality compared to
the industry’s product
• If the functions, attributes, or performance of the substitute product
are equal or superior to the industry’s product.
 Threat of Substitutes Low Risk Situation:

• Consumer switching costs are high

• Substitute product is more expensive than industry product
• Consumer switching costs are high
• Substitute product quality is inferior to industry product quality
• Substitute performance is inferior to industry product performance
• No substitute product is available
• A low threat of substitute products makes an industry more
attractive. In addition, it increases profit potential for the firms in
the industry. Conversely, a high threat of substitute products makes
an industry less attractive. It also decreases profit potential for firms
in the industry.
 How to reduce the Threat of
Substitutes
• There are a number of ways in which a company can mitigate the threat of
substitutes. For example, it can inspire brand loyalty through its marketing
efforts, product quality, and support services.
• It can focus intently on specific market niches, so that the value it offers to
customers within those niches exceeds the value that customers can obtain
from substitutes.