Substitute Product

A substitute product is a product for which another product can provide a similar level, or an acceptable level, of satisfaction to the customer on the particular purchase or usage occasion. Coca-Cola and Pepsi-Cola are obvious examples of substitute products for each other. However, both are members of the beverage category; and other cold beverages, such as water, iced tea, or beer could prove satisfactory substitutes on a hot day. But if the purpose for which the Coke or Pepsi were being sought was as an item to be used during a break from work, then a cup of coffee, a donut, or an energy bar might be an acceptable substitute in the mind of the potential customer.

In addition to the usage occasion and the customer's perspective, the actions of competitors help to establish the range of substitute products. The Polaroid camera initially was not a particular threat as a substitute for Kodak's Brownie camera (because its price was too high), nor was it viewed as a substitute for the existing top-end 35mm SLR cameras (because the resolution of the picture was not comparable). As Polaroid improved the technology and was also able to reduce the price because of an increase in volume, it became a viable substitute product for many other cameras.

It is generally agreed that Toyota Corollas do not compete with luxury sport utility vehicles and also that the Lincoln Navigator and Cadillac Escalade do compete with each other. However, expensive jewelry, an extended vacation, or original artwork could all be substitute products for the Lincoln and Cadillac for someone who is seeking the benefit of admiration from others or possession of a status symbol, not the benefit of transportation from point A to point B.