Rethinking Substitutes

We all know that the consumer’s wallet is getting lighter and lighter as they are either short on cash or are putting more into their savings. This scenario spells doom for anybody trying to sell anything as it puts tremendous pressure on demand. But what about those people who do have the money to spend but choose not to spend on your products? Even worse, they completely ignore your product “category” and substitute it with a totally different category or industry! Did you factor that into your Porter-5 competitive analysis “Substitute” bucket or did you just look at substitutes in the immediate vicinity of your product?

It’s time to rethink how you look at product substitutes. Case in point, a recent WSJ article that shows Americans spending more on electronics (like iPads, smartphones, and TVs) and less on durable goods (like furniture, washing machines and lawn mowers). WSJ goes on to quote federal data that was recently released by the US Commerce department. The Apples, Sonys, and Samsungs of the world have strong winds under their sails/sales as a result of the tech gadget boom. This trend is being further reinforced by the social media momentum where people want to know more and more about their network’s whereabouts, activities, and ideas, and these gadgets help consumers stay current, up-to-the-second. Finally, it’s not just about being current, but also about looking hip, cool, and trendy when you are noticed with your bag of devices.

Considering all of the above and then evaluating whether an average consumer would want to upgrade an old piece of furniture or rusting appliance, the choice becomes rather obvious.  Consumers are more likely to trend towards trendy, techie gadgets that they believe provides them with a much higher utility than say a fancy laundry machine.

So what is the key takeaway here? When strategizing, we need to challenge the things that we feel are typically must-haves for consumers. That consumer must-have list is changing or being substituted away rapidly with items that were traditionally considered nice-to-haves. Cash-strapped consumers are stretching the average useful life of the household items that do not give them the immediate satisfaction (like entertainment, information, competitive/social advantage) and potentially overspending on items that do.

Feel free to share your perspectives on this topic. Are you already factoring this in your strategic planning or is this something that you may have missed?