Business Strategy

1. Threat of Substitutes
Availability of other products or services that a customer
could purchase from
outside an industry

2. What is a substitute?
A substitute is an alternative option for a specific
product or service.
Tea and Coffee Pepsi and Coca Cola

3. High Threat of Substitutes
It limits the potential profitability of a company’s
products or services.
Reduces growth potential
Better price-performance trade-off by product of
another company
Buyer’s cost of switching to the substitute is low
Customer has more power

4. Low Threat of Substitutes
Higher chances of making huge profit margins
Customers have less power over decision-
making
Less competition and more control over the
market

5. Main Substitutes of Coca Cola:
• Pepsi and other soft drinks
• Fruit Juices
• Hot beverages
Threat of Substitutes:
Strong
Low switching costs of customers
Substitutes are high quality

6. Rivalry among Existing Competitors
Intensity of competition among existing
competitors in the market

7. Numerous
Competitors
Large number of equally
balanced competitors
undercutting each other
High intensity of rivalry limits profitability of the industry
Slow Industry
Growth
Companies can only
grow by capturing
market share from
each other
Non-price rivalry dimensions
High Exit Barriers
Economic, strategic and
emotional factors can
prevent companies from
leaving the industry,
even when they are
earning low or negative
returns on investments.
Rivalsare highly
committed
Large number of equally
balanced competitors
undercutting each other
Diverse Competitors
Diverse approaches to the market and
unique competitive strategies create
confusion

8. Price Competition
High Fixed Costs
High fixed costs create
pressure for all
companies to fill
capacity, leading to
price cutting when
there is excess
capacity
Lack of
differentiation
Similar products to
rivals mean low
switching costs for
customers. More
price cutting
Competitors will offer lowest price possible to capture customers.
Price competition become destructive for the profitability of an industry
Price rivalry dimensions:
Large increments
in capacity
The need for large
capacity expansions
often leads to long and
recurring periods of
overcapacity and price
cutting.
Perishable
products
Perishability creates a
strong temptation to cut
prices and sell a product
while it still has value.

9. Price rivalry is more damaging than Non-price
rivalry to industry profitability
• When dimensions are the same, it is a Zero-Sum competition
• One firm’s gain is often another firm’s loss. Drives down profitability
significantly

10. • Major players are Coca-Cola and PepsiCo
• Intense rivalry between the two major
players
• Players in the market havesame size,
similar products and strategies
• Very high price competition
Rivalry among Existing
Competitors:
Strong