In Porter's Five Forces, which term describes the pressure from substitutes that could replace a firm's products?

• A. Threat of substitutions
• B. Bargaining power of customers
• C. Rivalry
• D. Threat of new entrants

Answer: (A)

Substitutes create pressure when customers can switch to alternative products that satisfy the same need. In Porter's Five Forces, that pressure is called the threat of substitutes. If close substitutes are readily available, affordable, and capable of meeting customer needs, demand for the firm’s product can shift, pushing prices down and limiting profitability.

The other terms describe different pressures: bargaining power of customers is about buyers’ ability to push prices down, rivalry is the intensity of competition among existing firms, and threat of new entrants concerns potential competitors entering the market.