I’m finally reading Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne. I say finally because its been on my reading list for a couple of years now. This is a great book for anyone interested in business strategy and although many of the references are out-dated, the information is still relevant and compelling. There is a brief section on the difference between alternatives and substitutes that I found particularly interesting.
This distinction is relevant for anyone performing competitor analysis – marketing managers, analysts, digital marketing agencies, etc.
- Substitutes are products or services in different forms that have the same functionality
- Alternatives are products or services with different functions that serve the same purpose
Say you are providing competitor analysis for a restaurant, then you would more than likely review the other restaurants that are either near to yours or that have a similar genre.
Let’s say your restaurant serves Italian meals and is located in Portsmouth. You would consider all other restaurants in Portsmouth and especially other Italian restaurants in Portsmouth – but you might broaden the search to other Italian restaurants within reasonable driving distance too.
These restaurants are substitutes. They provide the same functionality – just different forms.
If this is as far as your competition analysis takes you, then you may be missing a large piece of the puzzle.
For many in your restaurant’s target audience, eating out is only one option available to them when deciding on a “night out”. There are other choices – cinema, theatre, concerts, etc.
These other options are alternatives. They have completely different functions but serve or satisfy the same purpose.
Let’s look at another example beyond competition and competitor analysis.
Let’s say your small business is looking to increase revenue and/or profitability. You could invest in different types of marketing – direct mail, trade shows, pay per click / adwords, blogging, etc. These are all substitutes.
Or you could review other ways to achieve the same purpose of increasing revenue / profitability – raise prices, reduce costs, improve efficiencies etc. These would be alternatives to the marketing iniatives and should form part of your business strategy process.
Many times real business opportunities can be found in the alternatives. This is the places / activities / markets that competitors have ignored or where better routes to your strategic goals can be found.