How To Overcome The Threat Of Substitutes
Substitute products or services can satisfy the same customer needs or can give similar benefits which may depend on the perception levels of the customer or on the nature of cross elasticity of demand and these products or services are offered by another industry. For example tea and coffee, bread and rusk are substitute products and they can satisfy the needs of the customers during price variations and demand conditions. If the price of coffee highly increases then the consumer shifts to tea and if the demand increases then they shift to tea. If the demand for tea highly increases then they will buy coffee. This happens in the case of substitute products and services porter explained this in his five forces model.
The level of competition among the substitute products decides the level of threat. The level of competition and threat are directly proportional to each other. If the substitute products or services are more, then the customers choose one of those products to fulfill their needs. In the case of such products and services threat and competition may become very high; it may lead to the complete elimination of some industries.
The threat of substitute products or services completely arises from the external environment. But here the need of SWOT analysis arises. If any product or service has more weaknesses than strengths then the extent of threat increases. Such conditions are discussed as follows. Organizations should consider the product weaknesses initially to set strategies.
Higher prices of the product or service
Higher prices of the products are the major risk-oriented threat; it makes the consumers choose substitute products. Many products may have very high prices in the markets, then also those on surviving, the reason behind is the uniqueness of the product and less competition from the substitute products. However, modern technology is bringing substitutes for each and every need of the customers. In such conditions, marketers have to take strategic decisions while fixing the prices by keeping the future threat in mind.
Quality of the product
Poor quality of the products makes the consumers switch over. Prior to the introduction of substitutes, the firms may enjoy monopoly conditions. However, the launching of substitute products bring out the quality issues of the existed products. Through the advertisements or customer awareness substitute products gradually occupy the market share, even the existed products prices are reduced to a greater extent also.
Performance of the product
The performance of a product or service is the great concern to the customers; they like to spend more on better-performed products or services. For example delays in the train timings, make the consumers to switchovers another services such as bus or taxi, another example, the performance between various mobile apps vs emails.
Threats from external environment:
Availability of the substitutes
The increase in the number of substitute products or services and their availability maximizes the threat. Most of the innovative substitute products are produced due to the existed product weaknesses and market research. To control the substitute products and their availability is impossible. So the organizations have to develop strategies to survive in the markets. Customer awareness and the internet are highly influencing the world’s markets to a greater extent. A simple access can make the consumers know about the substitutes. The innovation and availability are becoming major threats in the current market situations.
Customer perceptions may act as a major barrier between the products and customers, which is the reason for switching over. The belief or experience of the customers makes them select substitute products. The perceptions of customers are due to the product quality, price and performance, higher expectations from the substitute products which results in sharing of experience with others, it can create negative results.
Demand due to the shortage of raw materials
The threat of substitute products increases not only due to the product’s weaknesses or due to the strengths of the substitutes. Here the most important constraint to consider is demand conditions. The increase in demand due to the shortage of raw materials facilitates the substitute products sales and demand, customers do not wait for longer period of time, and in such conditions, they forget the brand image and switchover to substitute products.
How to overcome threat
Substitute products can eliminate some products totally from the markets by fulfilling the needs of the customers with their innovative and better-featured products and services. In order to overcome the threat from the external environment, organizations have to frame strategies in a way to counter attack and for survival.
Adapting differentiation strategy enables to produce innovative, better featured and unique products. Product differentiation satisfies the needs of the customers with an evolutionary sense. Differentiation may be introduced in the form of price, quality, performance, features, durability, reparability, and style, etc. Today in this competitive environment most of the organizations and products are surviving by using the differentiation strategy.
Brand Image and Loyalty
Many companies are surviving due to the brand image and loyalty. Qualitative products and services, in the long run, creates the brand image and creates loyalty. It can act as a strong bond between the company/product and the customers. So developing brand image and loyalty can prevent switchovers to a great extent.
Best value for customer’s money
Customers can calculate the best value for their money; it is the major reason for switchovers. So the organizations have to know the customer expectations and competitor’s strategies to develop the strategies for delivering better products and services to attain maximum benefits.
In order to stop the switchovers and to make the customers loyal towards the products, giving some special offers may help. These offers may be in the form of discounts, one plus one offer, gifts, special packages and trail purchases etc. It helps the organizations to create value for their products.
Awareness about usage of the product
Most of the products are becoming unsuccessful to compete because of the difficulty in the usage of the product, so they should create awareness about the usage and product features. For example in the case of refrigerators and washing machines etc, some customers may not know the entire features of the product.
The major solution to the problems caused by the substitutes is developing customer relations. Customer relations enable the companies to stop the switchovers and it facilitates customer retentions. Maintaining customer data and proper communication can make them know about the new offers and features of the products. Better customer relations can make the customers be loyal to the products and companies.
Market research facilitates the companies to know the expectations and needs of the customers and threats from the substitute products. Market research enables the companies to produce innovative better-featured products and services.