А threat from substitutes exists if there are alternative products with lower prices or better performance parameters for the same purpose. They could potentially attract а significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.
Similarly to the threat of new entrants, the threat of substitutes is determined by factors such as;
- Brand loyalty of customers,
- Close customer relationships,
- Switching costs for customers,
- The relative price for performance of substitutes,
- Current trends.
Sainsbury’s is not under any particular threat from substitutes in its stores due to the large variety of products available. Taking toothpaste as an example, Sainsbury’s stocks numerous brands of toothpaste that any specific toothpaste substitutes are made available. With regards to toothpaste as а product there aren’t any substitutes. You can’t brush you teeth with anything else.
There are substitutes for Sainsbury’s as а retail unit. The recent growth of e-shopping has meant that customers can choose the food they want online and have delivered directly to their door. For Sainsbury’s banking there is an increasingly popular substitute for their products which is online banking. Companies such as Egg and Cahoot have grown rapidly over the last few years and undermine the main magnetism that was the ease of accessing Sainsbury’s banking whilst shopping. Now with online banking people can gain access to their accounts from the comfort of their own homes.