For example, it can inspire brand loyalty through its marketing efforts, product quality, and support services. There are a number of ways in which a company can mitigate the threat of substitutes. Substitute products have lower costs than comparable products within the industry. Substitute products have higher quality/reliability than comparable products within the industry. Substitute products have better features than comparable products within the industry. Substitute products are readily available to customers. The following factors cause a higher threat of substitutes for an industry:Ĭustomers can easily switch between products. What Causes a Higher Threat of Substitutes? Thus, firms tend to generate higher profits at the expense of their customers. Because there is little prospect of competition from outside the industry, there is a higher potential for profits within the industry. When there is a reduced threat of substitutes, industry players tend to be more lax with their cost controls, resulting in higher prices charged to customers. When there is a strong threat of substitutes, industry players must pay more attention to operating in the most efficient manner possible otherwise, their high cost structures will interfere with profitability and may drive some firms out of business. In this case, price points are limited by the prices at which substitutes are available, thereby limiting the amount of profitability that can be generated within an industry. The competitive structure of an industry is threatened when there are substitute products available that offer a reasonably close benefits match at a competitive price.

The threat of substitutes is the availability of other products that a customer could purchase from outside an industry.

Threat of new entrants