Which of the following is TRUE about the threat of substitutes?
A)When threatened by substitutes,existing competitors will increase their prices.
B)Innovation makes an existing product or service more attractive to its customers.
C)If there are numerous substitutes,the firm's profit margins and revenues will decline.
D)If the competitors are strong,existing competitors will not react strongly to the threat of substitutes.

Question

Quizplus · Accepted Answer

If there are numerous substitutes, customers will have options to choose from, which may lead to a decline in the firm's profit margins and revenues. This is because customers can easily switch from one substitute to another based on their pricing and quality advantage, making it difficult for the firm to retain its customer base. Additionally, this can also lead to an increase in competition in the market, which can further impact the firm's profitability. Option A is incorrect because when threatened by substitutes, existing competitors may reduce their prices to retain customers. Option B is incorrect because innovation may not always make an existing product or service more attractive if substitutes are readily available. Option D is incorrect because if the competitors are strong, the threat of substitutes may lead to a strong reaction as it can impact the market share and profitability of the firm.

Which of the Following Is TRUE About the Threat of Substitutes