ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Verdana Foods sells packaged fruit juice. Its strategy team notes that customers can switch to sparkling water at no cost and that sparkling water is cheaper per litre and promoted as healthier. Which implication is most consistent with Porter's analysis of the threat of substitutes?

The threat of substitutes is high. Sparkling water is cheaper and seen as healthier, giving a better price-performance trade-off, and customers can switch at no cost. Being in a different category is what defines a substitute, so it does not reduce the threat.

1. AThe threat is high because the substitute offers an attractive price-performance trade-off and switching costs are lowCorrect
2. BThe threat is low because sparkling water is in a different product category
3. CThe threat is low because juice has many direct competitors
4. DThe threat is high only if new juice producers enter the market