What part of the economy would you investigate to find a good bet? Would you go with the airline industry and gamble on the popularity of air travel? Would you choose the cell phone market because, hey, everyone’s gotta have one? Would you go with snack food? Sneakers? Imagine you had $1,000 to invest any way you wanted to. HCMG 001: Introduction to Health Economics.STAT 001: Introduction to Statistics and Data Science.FNCE 002: Essentials of Personal Finance.FNCE 001: Introduction to Financial Markets and the Global Economy.Management & Technology Summer Institute.Read next: Barriers to entry: Factors preventing startups from entering a market References Produced by industries earning high profits-development increases competition in their own industries, causing price reduction or performance improvement.Subject to trends that improve their price-performance tradeoff with the industry’s product.Substitute products that deserve the most attention include those: Positioning an industry’s products or services against the substitutes may take place via collective industry actions (for example, sustained advertising by industry participants).
Identifying substitutes involves searching for other products or services that can perform the same function as the industry’s product or service. Substitutes can create intense competition during normal economic times, and reduce potential profit increases during positive economic times. Demand for substitutes can also reduce the demand for industry products and services. As the price-performance alternative offered by substitutes becomes more attractive, it becomes even more difficult for those firms to make a profit. Substitutes limit an industry’s potential returns by placing a ceiling on the prices that firms within that industry can charge to make a profit. Substitutes, potential returns, profits and competition
Threat of substitutes is one of the five forces that determine the intensity of competition in an industry. Threat of substitutes (from Porter’s five forces analysis) occurs when companies within one industry are forced to compete with industries producing substitute products or services. Researching a market? Our free online course Introduction to Market Sizing offers a practical 30-minute primer on market research and calculating market size.
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