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Threat of substitutes

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Threat of substitutes

  1. 1. Threat of Substitutes<br />Force: Likelyhood of changing to substituteproduct<br />Ifswitchingcost is low -> seriousthreat<br />Examples:<br />Industry – Soft Drinks<br />Buyerpropensity to substitute: <br />BrandLoyalty <- decreases the threat<br />Relativepriceperformance: <br />Pricecompetition: Similarproductbutcheaper = threat<br />Lowerqualitybutsignificantlycheaper = threat<br />Slightlybetter and a littlemoreexpensive = threat<br />Buyerswitchingcosts: <br />Biggercosts, smallthreat. Buyerslike to useonlyonesupplier.<br /><ul><li>e.g. in restaurant business Pepsi vs. Coca-Cola: campaignsand promotionmayincrease the switchingrisk.
  2. 2. Fixedterm leasing contracts (sodamachines/brandfridges), maintenancecontracts, re-fill and deliveryterms and costsreduce the threat of switching. </li></li></ul><li>Threat of Substitutes<br />Industry – Hotels<br />Buyer propensity to substitute: <br /><ul><li>Chain loyalty decreases the threat. (Memberships like Hilton HHonors, Marriott Rewards)
  3. 3. Business travel: contract hotels, gaining points and benefits
  4. 4. Tourism: offers matter</li></ul>Relative price performance: <br /><ul><li>Price counts. But:</li></ul>-> When two similar hotels in line from the same price range, decision is done based on issues not valued in money: Service and room quality, cleanliness, recommendations, location, additional services like spa or casino<br />-> the more you get with the same price the better = High threat for switching<br />Buyer switching costs: <br />For tourist, none. Not so committed.<br />For business traveller or company: Not necessarily much concrete costs but e.g. chain change causes bureaucracy and takes resources. Old benefits are used -> new bookings are made. Even the room would be virtually free, additional services are used like restaurants<br />

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