Substitutes and the Five Forces Model

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Substitutes and the Five Forces Model

I am interested in '(innovative) substitutes' such as:
1. New inventions (e.g., mobile phones as communicators)
2. New applications of existing products (e.g., internet on mobile phones)
3. New technologies to gainfully use existing materials more effectively (e.g., nanotechnology)
4. New discoveries about an existing product/material (e.g., use of aspirin to treat heart ailments)
The list goes on.
Is the impact of the likes of the above covered in Porter's framework?
I think the threat from such forces which could make your product or service obsolescent / redundant is (strategically) more important today than all other forces put together, because the timeframes for various new inventions and discoveries has come down a lot. We might call it an increase in the rate of evolution of mankind...

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		4 Jagdish B Acharya Consultant, India
	Major Inventions/Substitutes Make New Rules, they don't Follow Old Rules When a substitute or some invention arrives, it can change the paradigm and new rules or business models can be born and wanted. It is difficult to find models which are able to explain substitutes or inventions. I recommend: Disruptive Innovation. I think a simple substitute, like an increase in supply may follow existing rules, but real innovative substitutes cannot be explained using 5 forces, generally. In my view a case by case treatment must be done based on the nature of the particular substitution.

		1 Satriyo Dharmanto Deputy ICT Director, Indonesia
	Porter's 5 Forces and New Technological Substitutes It's a very useful tool that can be used to make a significant analysis of an industry, in combination with other related tools. Regarding the threat of substitutes, I personally think that new technology development is a major parameter that must be considered to enable the right strategy to deal with current turbulent and technological conditions.

		4 Jaap de Jonge Editor, Netherlands
	Innovations/Substitutes in 5 Forces Analysis and Alternative Models The Threat of Substitutes is one of Porter's 5 forces determining the value or attractiveness of an industry. There are obviously 4 others. Although Porter admitted that the internet has a major impact on all of the 5 forces, including substitution, Porter does not regard (internet) technology as a new separate 6th force. Anyway, substitution is covered. But I agree with @Jagdish B Acharya that for (major) technological innovations and substitutes the Disruptive Innovation framework of Christensen offers more specific and in-depth strategic insight than the Five Forces model is able to give. We should see FFA as a more generic industry analysis tool. Also have a look at the Jobs to be Done Approach (JTBD). This model stresses that when customers buy a product from some company, what they REALLY want is to hire them to do a job. So we should think of ideas or substitutes that make this job for the customer more simple, faster, better, more convenient, more fun or cheaper. Sensemaking is also a very interesting approach to substitution by getting an in-depth understanding of what customers are REALLY looking for.

		1 Anonymous
	Definition of a Substitute A substitute is in consumer theory and business strategy another product or service that can be used for the same purpose by the consumers and take the place of an existing one. Substitution can happen to a certain degree or completely ("perfect substitution"). A substitute good is a good with a positive cross elasticity of demand. Perfect substitutes have a higher cross elasticity of demand than imperfect substitutes do.

		1 Anonymous
	Examples of Substitutes - More and more people substitute tofu for meat nowadays as they use tofu instead of meat. - Video conferencing tools like Skype or Teams or Zoom can be substitutes for business traveling/flying. - Car/boat/bike/e-scooter leasing/hiring can be a substitute for owning your own one. All 3 examples mentioned decrease the environmental footprint of modern, conscious consumers.

		1 Anonymous
	Factors in Substitution The risk of substitution can be considered high when: - Switching costs for consumers are relative low. - Consumers are not very loyal and their price sensitivity is high. - The perceived performance and quality of substitute products are good or even superior. - Perceived product differentiation is low compared to its substitution. Poor branding by the original. - Substitutes are easily available in the market.