Mitigating the Threat You Face from Substitute Products

One of the biggest threats your business faces is the threat of substitute products and services. There’s always somewhere else your customers can spend money. If you’re expansive in your thinking, you’ll identify the real threats you face and you can mitigate them accordingly.

A good business plan or strategic plan has to spell out what the threats are to your product. One of the biggest threats you’ll face is substitute products. What can replace your product? What can solve the customer’s problem just as easily and do it cheaper? What substitutes are competing for the same dollars that you are? Remember, it may not be a direct competitor to you. Be able to articulate what those substitutes are and why your customer is going to choose your product versus that substitute.

For example, I had a guy come to me with his awesome business idea. The problem he articulated was when he gets his socks out of the dryer they’re not matched and he takes him a lot of time to match his socks together. He shared his business idea was for RFID pairing of his socks. He wanted to put a small device in each sock, and then when he held them close together they would beep.

I looked at him and I said, “You know the substitute to your product, right?”

He said, “No, I’m not sure. We don’t have any competition.”

I said, “Well, I just tie my socks together.” His whole business plan fell apart in that moment.

There are Always Alternatives

There are always alternatives to your product. I worked at a consumer packaged goods company and that company sold lawn and garden products. Our CEO said, “You know who our biggest competitor is?” We were waiting for him to name our biggest competitor in lawn and garden consumer packaged goods. That’s when he surprised us with his answer.

He said “Our competition is Google.”

Everybody looked around the room confused. He said, “Look, we’re both competing for one thing. We’re competing for the consumer’s time. That consumer can either spend time in the garden with our products, or they can spend time inside behind their monitor on Google and on the Internet. That’s our competition. Given that, how do we position our business to be more competitive with those offerings?”

This insight led us to fundamentally rethink how we looked at competition. The threat of substitutes was real for us and it came from an unexpected source.

Mitigating the Substitution Threat

Another example of dealing with the threat of substitutes hits close to home for me. Video training courses versus classroom training is a very real threat to my business – possibly. People can learn a great deal from video like they do on from the courses I teach on Lynda.com. There’s a temptation for folks to want to substitute my video training for classroom training. To blunt that threat, I need to be able to differentiate our classroom offerings and show that video is not a complete substitute for what we do.

I have to spell out what you get in the classroom: you get immersion, practice, and linkages with your day-to-day job. I then articulate what you get from video: you get convenience and content. I need to show how each offering benefits the customer. By clearly demonstrating how the products are complementary but one offers far more benefits (and obviously at a higher price point), I’m able to mitigate a threat of my videos being substituted for my classroom training. If I demonstrate the argument well enough, people see that the video training is actually complementary and supportive of our classroom sessions.

When you spell out your business plan or strategic plan, define those competitive offerings. Thing broadly about where the threat can come from. Explain what those substitutes are, and more importantly, what you’re going to do to make sure the customer chooses your product versus the substitute.

To learn more about business planning and mitigating the threat of substitutes, watch my new course Writing a Business Plan on lynda.com, including free chapters on

• Determining why you need a business plan
• Defining the problem you solve

– Mike Figliuolo at thoughtLEADERS, LLC

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