Porter Five Forces - Competitive Analysis

And the Threat of Substitute Products

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Introduction to the Threat of Substitute Products

An analysis of the threat of substitute products will identify the likelihood that customers to your industry will switch to purchasing an alternative product from outside your industry.

You will find that the impact on your industry will vary depending on the take up rate of the substitute products. A substitute product can decimate an industry overnight or may have little to no long term impact.

 

Analyzing the threat of Substitute Products

To analyze the threat of Substitute Products, you will need to consider the following factors,


Or Click here to view and download a free Porter Five Forces Template

 


Analysis Criteria

Description

The relative price performance of substitutes
 

Refers to the cost effectiveness of the substitute products, (Total supply chain costs)

Alternative products that provide overall savings to your customers, without impacting the quality of your customer’s products or services are more likely to be viewed favorably for adoption.

Switching costs

Refers to any cost incurred by your customers to switch to an alternative product

Does your customer incur any costs to switch to a substitute product?

These costs could be legal review of new contracts, change in spare parts and change in ordering systems. These may also be intangible costs such as risk.

Buyer propensity to substitute

Refers to your customers loyalty to your product or service

How do your customers react to substitutes, do they trial them or are they loyal to your industry?

It would also pay to identify the things that need to change for your customers to change their propensity to trial substitute products.

 

Sample Porter Five Forces Template, Analysis of the Threat of Substitute Products

 

Analysis Criteria

Risk Rating

High

Medium

Low

The relative price performance of substitutes

 

 

 

Switching Costs

 

 

 

Buyer propensity to substitute

 

 

 

Overall Risk Rating

 

 

 

 

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Alternative Template for the Threat of substitute products

The following free strategic planning template can be used to determine if each of the factors that affect the threat of substitute products has a positive or negative risk.

You can then give an overall rating for this force.

 

The threat of substitute products

Comments on the threat of substitute products

Rating

The relative price performance of substitutes

 

 

Switching Costs

 

 

Buyer propensity to substitute

 

 

The threat of new entrants overall rating

 

 

Porter Model Templates from What Makes a Good Leader, View and download our Porters Five Forces Template Here

 

After completing your Analysis

After completing your analysis you should transfer the key highlights to your SWOT analysis. Generally, you only need to add high level commentary to your SWOT.

Given that Porters five forces is an industry analysis technique you will only need to update the opportunities and threats in your SWOT analysis.

Why not take 5 minutes to learn how to use all five forces in the porter model to ensure you can analyze and understand the nature of competition in your industry.

 

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