Threat of Substitution

The threat of substitution refers to the risk that customers might choose a different product or service instead of the current one because it offers a similar benefit, but perhaps at a better price, quality, or convenience. When there are many alternative options available, it can reduce demand for the existing product, putting pressure on prices and profitability. Businesses need to consider this factor because the availability of effective substitutes can limit their market potential and influence their strategies for innovation, pricing, and marketing.