First, if the consumer’s switching costs are low, meaning there is little if anything stopping the consumer from purchasing the substitute instead of the industry’s product, then the threat of substitute products is high. Several factors determine whether or not there is a threat of substitute products in an industry. Threat of Substitutes – Determining Factors A threat of substitutes example is the beverage industry due to a market with many competitors. On the other hand, the lack of close substitute products makes an industry less competitive and increases profit potential for the firms in the industry. The availability of close substitute products can make an industry more competitive and decrease profit potential for the firms in the industry. 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. The threat of substitution in an industry affects the competitive environment for the firms in that industry and influences those firms’ ability to achieve profitability.
According to Porter’s 5 forces, threat of substitutes shapes the competitive structure of an industry.ĭownload the External Analysis whitepaper to gain an advantage over competitors by overcoming obstacles and preparing to react to external forces, such as it being a buyer’s market. A substitute product is a product from another industry that offers similar benefits to the consumer as the product produced by the firms within the industry. Porter’s threat of substitutes definition is the availability of a product that the consumer can purchase instead of the industry’s product. Jul 24 Back To Home Threat of Substitutes (one of Porter’s Five Forces)Ĭomplementors (Sixth Force) Threat of Substitutes Definition