substitute

(noun)

A replacement or stand-in for something that achieves a similar result or purpose.

Related Terms

Examples of substitute in the following topics:

  • The Resource-Based View

    • Effectively, this principle translates into valuable resources that are cannot be either imitated or substituted without great effort.
    • These characteristics are described as valuable, rare, inimitable, and non-substitutable, referred to as VRIN:
    • Non-substitutable – Even if a resource is rare, potentially value-creating and imperfectly imitable, of equal importance is a lack of substitutability.
    • If competitors are able to counter the firm's value-creating strategy with a substitute, prices are driven down to the point that the price equals the discounted future rents, resulting in zero economic profits.
    • Rare earth elements satisfy the requirements of being VRIN, in that they are valuable, rare, largely inimitable due to few extraction sites, and difficult to substitute.

  • Considering the Environment

    • The five forces include power of buyers, power of suppliers, rivalry (competition), substitutes, and barriers to entry (how difficult it is for new firms to enter the industry).
    • Porter's five-forces analysis identifies five environmental factors that can influence a company's strategic design: power of buyers, power of suppliers, competition, substitutes, and barriers to entry.

  • Porter's Five Forces

    • Threat of substitute products or services: The existence of products outside of the realm of the common product boundaries, which fulfill the same need, increases the propensity of customers to switch to alternatives.
    • Take transportation as an example: General Motors (GM) would view city subways as a substitute to someone buying a new car.
    • When there are few substitutes, suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm.

  • Limitations of the Five-Forces View

    • This diagram represents the components of Porter's Five Forces model: (1) threat of new entrants, (2) threat of established rivals, (3) threat of substitute products, (4) bargaining power of buyers, and (5) bargaining power of suppliers.

  • The Challenge of Competition

    • On the surface, internal competition involves either direct product substitutes or funding competition (among different business units).