Competitive pressures from substitute products are stronger when?

Competitive pressures from substitute products are stronger when switching costs to substitutes are low. When consumers can easily switch from one product to another without incurring significant costs—such as monetary prices, time, or effort—they are more likely to take advantage of substitute products. This fluidity in consumer behavior means that even minor improvements in the quality or pricing of substitutes can result in a substantial shift in market dynamics.

In markets with low switching costs, customers feel empowered to experiment with alternatives, increasing competitive pressure on existing providers to innovate or maintain pricing strategies that prevent customers from switching. When switching costs are high, customers are less likely to change their purchasing behavior, which can shield existing firms from the threat posed by substitutes.

While the presence of numerous sellers of substitutes and the quality of substitutes also play roles in competitive dynamics, it is the ease of shifting between products that amplifies the pressure significantly. Reluctance to switch among buyers generally dampens competitive pressure from substitutes because it indicates customer loyalty or satisfaction with current products, thereby reducing the immediate threat from alternatives.