Threat of Substitute Products

• Substitute products are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces.
• Product substitutes present a strong threat to a firm when customers face few if any switching costs and when the substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product.
• Differentiating a product along dimensions that are valuable to customers (such as quality, service after the sale, and location) reduces a substitute’s attractiveness.