Substitutes and Strategy: Five Types and Distinct Strategic Imperatives

The piece argues that the growth trajectory of a substitute offering hinges on its context. When a product forces a user to pay for a task that was previously free, the challenge is convincing users to reallocate money, as illustrated by the decades-long adoption curve of automatic dishwashers. The strategic imperative is to make the value proposition crystal clear and avoid over-building capacity before demand materializes.

When the user already pays for a task but adoption is blocked by missing infrastructure, the substitute must create or fund that infrastructure. Television needed content pipelines, and modern EVs require charger networks; both succeeded when incumbents or pioneers invested heavily. The key move is to eliminate the infrastructure bottleneck to accelerate substitution.

Cost-gated substitutes, such as EVs versus ICE vehicles or solar versus conventional power, demand aggressive cost reduction to achieve parity and spur rapid adoption. Incumbent-driven substitution, like Westlaw's move from printed case books to an online search service, shows that firms can protect market share by cannibalizing themselves, but must temper expectations about net growth. Finally, outsiders that introduce an ungated substitute-smartphones displacing feature phones, Southwest replacing Greyhound-must move fast to lock in market position before the incumbent reacts, as Apple demonstrated with the iPhone.