Question

4. What is a substitute, and how does it relate to competitive threats?

5. What is the purpose of common-size statements?

6. What does the “beta” of a common stock indicate?

7. Pick a company whose products you actually use. Describe either a strength or a weakness of a specific product of that company, fully describing why you believe that particular trait creates a product strength or weakness.

8. What is the pricing policy of the company you are analyzing (BURBERRY). Does this particular pricing policy create a strength or a weakness for the company when you factor in their target market? Explain your answer.

Answer 1

Answer:

1) What is a substitute, and how does it relate to competitive threats?

A substitute product is one that may offer the same or similar benefits to a company as a product from another industry. The threat of a substitute is the level of risk that a company faces from replacement by its substitutes. For more generic, undifferentiated products the threat is always higher than from more unique products. A company that has several possible substitutes that can easily be switched to has little control over the prices it sets or how it chooses to sell the product.

The existence of substitute product offers customers different choices and allows them options within the industry and beyond it to products that may fulfil a similar need. In more generic products, there are often more than one ways to address a particular need. An example of this is the option to choose different modes of transportation when going from destination A to destination B. If an airline operates on that route, it must compete with all other airlines on that route as well as any possible ground routes such as car rentals, buses and trains.

substitutes are not immediately recognizable since they are often from outside the industry a company operates within. This is why there needs to be special attention paid towards identifying the threat of substitutes and developing strategies to counter it in the long term. There is always the danger that a company may be too focused on handling its direct competitors and may miss the imminent threat of a substitute. This can even happen at an industrial scale, wherein the effort to compete with companies within the industry can overshadow threats from the outside.

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