Porter's Five Forces Analysis

Threat of Substitution. What is it?

Threat of Substitution

Companies are concerned about the threat of substitute products (or services) displacing their own.  The threat of substitutes is high when rivals or even companies outside the industry offer more attractive and/or lower cost products.  Buyers then have the opportunity to make a price/performance trade-off. The cost of switching is also a factor; if it is high, the treat of substitution is low.

Questions to Ask

Is it easy for consumers to switch to another product/service?

What are the major substitute products?

What are the trends in market share of the product and its substitutes?

 What are the growth rates?

What are the price/value characteristics?

Are consumer preferences or consumer demographics changing?

What are the Company's Products and Brands?

Companies describe their business and list their business segments, products and brands in Item 1 of their 10-K report to the SEC.  Find the 10-K report on the company's website on the "Investor Relations" page or search the SEC's EDGAR database.

Find Market Share of Products or Brands

Find News about Innovation and New Products

Articles from trade journals are some of the best sources of information on new products and technology innovation.

Find News and Research on Brand Equity

Find Reports on Consumer Preferences/Consumer Demographics