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What do you think are the factors that affect t...

What do you think are the factors that affect the strength of competitive pressures from substitu...

What do you think are the factors that affect the strength of competitive pressures from substitute products in a market?

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Chiranjibi Chapagain Mar. 22, 2018

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. According to Porter's 5 forces, threat of substitutes shapes the competitive structure of an industry.

Substitute products are a latent source of competition in an industry. In many cases they become a major constituent of competition. With regards to substitute products, factors such as prices, easy availability, and how best they are able to satisfy the needs of customers, determine the amount of competition through them.

Examples of substitute goods include margarine and butter, tea and coffee, beer and wine. Substitute goods not only occur on the consumer side of the market but also the producer side. Substitutable producer goods would include: petroleum and natural gas (used for heating or electricity).

Substitute products offering a price advantage and/or performance improvement to the consumer can drastically alter the competitive character of an industry. And they can bring it about all of a sudden.

Wherever substantial investment in R&D is taking place, threats from substitute products can be expected. Substitutes, too, usually limit the prices and profits in an industry.

What do you think are the factors that affect the strength of competitive pressures from substitute products in a market?

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