What is substitute products?

Substitute products meet the same underlying customer need through an entirely different means — video calls substituting for business travel, a hired freelancer substituting for design software. In Porter’s Five Forces, the threat of substitutes is its own force because substitutes cap what an entire industry can charge: raise prices too far and demand leaks out of the category altogether.

Substitutes are easy to ignore because they never show up in feature comparisons, yet “do nothing” and “do it manually” are the biggest substitutes in almost every software market. Pricing and positioning should be tested against the substitute, not just the named competitor — that is the ceiling buyers actually reference.