Exercise 5: Substitutes — Spotting Alternatives in Everyday Life

Most people miss the real threat in a market because they only look at direct competitors. But the biggest danger often comes from something that doesn’t even compete on price or features — it solves the same need in a different way. That’s the power of substitutes. When you ignore them, you risk being blindsided. I’ve seen startups fail not because of rivals in their niche, but because a different category — like messaging apps replacing SMS or streaming replacing cable — took over the core need. This exercise teaches you to see beyond the obvious.

You’re not just identifying alternatives. You’re learning how to spot invisible threats before they become visible. This isn’t about memorizing a list. It’s about training your brain to ask: “What else could someone use to solve this problem?” Over time, this habit turns you into someone who anticipates change, not reacts to it.

By the end of this exercise, you’ll have a clear method to identify and evaluate substitutes in any market. You’ll see how minor shifts in consumer behavior or technology can open doors for entirely different products. This is strategic thinking in action — not theory, but practice you can use today.

Why Substitutes Are Often Overlooked

Substitutes are rarely on the radar of first-time analysts. It’s easy to focus on the brands you see at the store or the apps on your phone. But the real question isn’t “Who else sells coffee?” It’s “What else could someone drink to feel alert?” That’s where the real threat lives.

Consider the coffee shop. Most would say competitors are other coffee shops. But the real substitute? Energy drinks. The morning commute. Even a strong cup of tea. These aren’t just alternatives — they’re direct solutions to the same problem: boosting alertness.

Substitutes don’t need to be similar in form. A smartphone isn’t a camera — but it replaces one. A tablet isn’t a laptop — but for many, it’s enough. The key is not what the product is, but what it does.

How to Approach the Substitute Products Exercise

Start with a simple question: What need does this product fulfill? Once you understand the core function, look for other products that fulfill the same need — even if they’re from a different industry.

Here’s a step-by-step method I use in real-world analysis. It works whether you’re studying a fast-food chain or a mobile app.

1. Define the customer need. What problem does this product solve? Be specific. Is it convenience? Speed? Social connection?
2. Brainstorm all possible solutions. List every product or service that could meet that need, even if it’s not obvious.
3. Evaluate feasibility. Is it actually a substitute? Can customers realistically switch? Is it affordable, accessible, and perceived as comparable?
4. Assess threat level. How strong is the threat? Is it growing? Are consumer preferences shifting?

Doing this systematically turns a fuzzy idea into a clear insight. And it’s the same method I use when advising small businesses on market positioning.

Real-World Examples of Recognizing Business Substitutes

Let’s walk through a few cases where substitutes changed entire industries.

• Streaming vs. Cable TV: The need: entertainment in the home. The substitute: Netflix, Hulu, Disney+. As streaming quality improved and pricing dropped, cable lost its edge — not because it was bad, but because the solution was better, faster, and more flexible.
• Uber vs. Taxi: The need: fast, reliable point-to-point transport. The substitute: ride-sharing apps. Taxi companies didn’t lose to competition — they lost to a new way of delivering the same service.
• Smartphones vs. Cameras: The need: high-quality photos. The substitute: the smartphone camera. As image quality improved, standalone cameras saw declining demand — even among professionals.

Notice a pattern? The substitute wasn’t always marketed as a competitor. It was a solution that just happened to do the same job better.

Common Mistakes When Identifying Substitutes

Even experienced analysts make errors here. I’ve seen students list “the same product from another brand” as a substitute. That’s not a substitute — that’s direct competition.

Here are the most frequent missteps:

• Confusing substitutes with complements. A smartphone and a charger are complements — one doesn’t work without the other. A substitute replaces the function.
• Overlooking indirect substitutes. A book and a podcast both deliver knowledge. One isn’t a direct substitute, but for many, it’s a viable alternative.
• Assuming substitutes must be similar. A video game and a gym both improve focus and reduce stress — they’re substitutes in emotional benefit, even if different in form.

Remember: substitutes are defined by need, not category. If it satisfies the same core function, and customers could reasonably switch, it counts.

Checklist: Are You Spotting Real Substitutes?

Use this quick checklist before finalizing your analysis:

• Does the alternative solve the same customer problem?
• Is it gaining traction in usage or awareness?
• Would a customer realistically consider switching?
• Does it offer a better value proposition in terms of cost, time, or convenience?
• Is the barrier to adoption low (e.g., no special skills, no new habits)?

If you answer “yes” to all, you’ve likely found a real threat — not just a possibility.

Exercise: Identify Substitutes in Your Daily Life

Now it’s your turn. Pick one product you use regularly — maybe coffee, a commute method, or a communication app.

Follow these steps:

1. Choose a product: Write down one product you interact with daily.
2. Define the need: What need does it fulfill? (e.g., alertness, connection, entertainment)
3. List alternatives: Brainstorm 3–5 products that meet the same need in different ways.
4. Evaluate threat: Rank each alternative by how likely it is to replace your chosen product.

For example:

Original Product	Customer Need	Alternative Solutions	Threat Level (Low/Med/High)
Instant coffee	Fast alertness	Energy drink, black tea, strong black coffee, nootropics	High (energy drinks), Medium (tea), Low (nootropics)

Notice how the threat isn’t just about how similar the product is. It’s about how easy, affordable, and effective the alternative is for the user.

Why This Matters for Real Strategy

Understanding substitutes isn’t just academic. It’s how you protect your business. When a new alternative emerges, the first to recognize it can adapt — or even lead the shift.

Small businesses don’t always have the budget to compete head-on with giants. But they can win by being the first to offer a better solution — even if it’s from an unexpected direction.

Take the rise of plant-based meat. It wasn’t just a new product — it was a substitute for beef. Companies like Beyond Meat didn’t win by being cheaper. They won by meeting the same need — protein, flavor, satisfaction — in a way that appealed to health-conscious and environmentally aware consumers.

Alternative Competition Examples in Action

Here are two real examples of how substitutes reshaped markets:

• E-books vs. Physical Books: The need: access to content. The substitute: digital versions. E-readers like Kindle made it easier to carry hundreds of books, leading to a significant drop in physical book sales — not because people stopped reading, but because the format changed.
• Video calls vs. In-person meetings: The need: collaboration. The substitute: Zoom, Teams. After the pandemic, many companies realized they didn’t need office space for every meeting. The alternative wasn’t just convenient — it saved time and money.

These aren’t hypotheticals. They’re shifts that happened in real time. And they could have been predicted — if someone had asked the right question.

Final Thoughts: Train Your Mind to See Beyond the Obvious

Recognizing business substitutes is not a one-time task. It’s a mindset. It means asking, “What else could someone use to do this?” every time you see a product.

This exercise is designed to make you uncomfortable — not because it’s hard, but because it challenges assumptions you’ve likely accepted without question. But discomfort is where learning begins.

The biggest threat to any business isn’t always from a new brand. It’s from something that wasn’t even in the same category. When you learn to spot those shifts early, you’re not just analyzing — you’re anticipating.

And that’s the power of a real strategist.

Frequently Asked Questions

What exactly is a substitute product?

A substitute product is any product or service that fulfills the same customer need as your offering, even if it’s from a different industry. For example, a movie streaming service is a substitute for going to the cinema.

How do I know if an alternative is a real substitute?

Ask: Could a customer realistically switch to this alternative to meet the same need? If yes, and if it offers better value, it’s a real threat. Consider cost, convenience, and user adoption.

Are substitutes only about price and quality?

No. Substitutes can be driven by convenience, speed, lifestyle alignment, or brand trust. For instance, a fitness app might replace a gym membership not because it’s cheaper, but because it’s more flexible.

Can a substitute come from a completely different industry?

Yes. The key is the need, not the category. For example, a podcast can be a substitute for a book, a physical workout for a gym membership, or a messaging app for email.

Why is it important to identify substitutes early?

Because they can disrupt a business faster than direct competitors. Being aware helps you adapt your strategy before market share drops.

How can I use this in my own business or project?

Use the checklist and exercise above. Apply it to your product or service. Ask your customers: “What else do you use for this?” Then analyze whether those alternatives pose a real threat.