Threat of substitutes in Porter Five Forces Model
In this article you will learn about:
- What is the threat of substitutes in Porter Five Forces Model?
- Examples of substitutes.
- What are factors affecting threat of substitute in Porter Five Forces model?
What is the threat of substitutes in Porter Five Forces Model?
The substitute is any alternative product or method which isn’t generated from the same category that your product (or your competitors’ product) is manufactured from.
Examples of substitutes:
- The substitutes of drugs are healthy vegetables which contain vitamins and proteins to treat some diseases.
- The substitute of drugs may be the complementary medicine.
- The substitute of cars is bicycles.
- The substitute of Air Traveling is Sea Traveling or Roads traveling.
If there is possible substitute for your product, this will affect your business and you should know this before you release your product (Market Penetration) or developing your existing ones (New Product Development).
What are factors affecting threat of substitute in Porter’s Five Forces model?
Price / Performance ratio of the substitute (factor affecting threat of substitute in Porter Five Forces model):
Performance means how the substitute performs (how it works), what about its efficacy, quality, performance as overall.
You can know the position of your product versus substitutes through the following matrix:
Willingness to look for substitute (factor affecting threat of substitute in Porter Five Forces model)
This factor depends on the culture of your target segment. You can confirm this by conducting a questionnaire about your product performance, and what is your customers’ opinion about available substitutes, what they don’t like in substitute, what they like and you don’t have?
Because all of the data you get from the customers can help you in your product development.
Switching cost for buyers (factor affecting threat of substitute in Porter Five Forces model)
Are you customers are complaining from your product’s price? Is the price of the substitute is far from your product’s price? Is that difference enough to make some customers shift from your product to that substitute?
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