Substitutes vs. Alternatives – Understand your Competition Better
So who do you compete with? Lets ask – who does Indian Railways compete with? They are a monopoly, but the biggest competition comes from low cost airlines as well as bus travels.
That’s the difference between substitutes and alternatives – there isn’t any substitute for Indian Railways, but there are multiple alternatives.
Substitutes vs. Alternatives : What’s the Difference?
Substitutes: Products or services that have different forms, but offer similar functionality/utility.
Alternatives: Products or services that have different functions and forms, but can potentially cater to similar purpose.
In general, alternatives outnumber the substitutes – and that’s where lies your real competition.
How?
Because buyers look at both substitutes and alternatives before making the buying decision. For instance, if you are planning to buy a two-wheeler (commute purpose only), you would weigh different products in similar category/brands (i.e. look for substitutes), and also the super alternative, i.e. Tata Nano. But if you are looking for adventurous experience, your alternatives and substitutes are narrowed down to very few, as the buying decision is based on certain attributes you are looking at. For example, Royal Enfield bullets come at the same price tag as Tata Nano – but are they alternatives? Not at all, since the attributes do not match.
As a company selling product/service, it’s really important to understand who you compete with (Must Read : What Business Am I In?] – not as a product/service, but as perceived by the buyer.
And unless you do not understand your competition, you will end up fighting your substitutes while your alternatives can probably take away the cake (sometimes there is a thin margin between substitutes vs. alternatives).
Thoughts?
If you are a startup, do this exercise – take a piece of paper and write down your substitutes and alternatives? You will surely see some new competition emerging.
Share your experience with us too!
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Very good point Ashish. In fact, to put it another way, substitutes may actually be beneficial because all of them are trying to push for the same new idea/things and growing the market. Alternatives actually eat into your market size itself. Something like GnR’s style music becoming obsolete due to arrival of Nirvana
So true Ashish.
Sometimes you never knew the existence of your alternatives (either by ignorance or arrogance) and you keep producing and enjoying the market and suddenly you see the alternatives grown as substitutes and then one day you become substitute of them….finally since he substitutes and alternates your product you become non-existent over a period of time
Hope you will enjoy this !!!
Hi Ashish,
Your thought is simply amazing…Actually is giving a new dimension to my marketing strategy.
If I am selling SaaS service, I assume my competition is with substitutes and alternatives as well. Substitutes for my system are in house applications. But I am wondering what would be an alternative?
Dont you think they (Substitution and Alternative) are actually the same?
I am just thinking loud…
Imtiaz K.
Interesting question – if you look at SaaS, your typical alternatives could be a manual process, an offline process that basically gets the same thing done.
What kind of apps do you sell?
Hi Ashish,
I am my apps are presently in a transition. Going to be pure play SaaS system in 12 weeks. We sell ERP and learning systems.
Imtiaz