Global Strategy Practice Test

The correct answer highlights the concept of switching costs associated with substitutes. When there are high costs for switching to substitute products, consumers are less likely to transition from their current product to an alternative, even if the alternative may offer better features, pricing, or benefits. This creates a barrier that protects the incumbent industry from competitive pressures exerted by substitutes.

In this context, high switching costs can stem from factors such as financial expense, time investment, or the need for additional adjustments that consumers would need to make. As a result, even if substitutes exist, they may not pose a significant threat to the industry as consumers may opt to remain with their current provider instead of incurring the costs associated with switching.

Understanding this dynamic is crucial in strategic planning, as industries that face weak competitive pressures from substitutes can focus more on enhancing their product offerings or improving customer retention, rather than constantly having to innovate in response to substitute threats.