Entrepreneurs must recognize that they have to compete against those producing substitute products, i.e., those products that are capable of satisfying similar customer needs but have different characteristics. In effect, prices charged for substitute products represent the upper limit on the prices that supplier can charge for their predicts.

The threat of substitute products is greater when:
•    Buyers or customers face few, if any, switching costs;
•    prices of the substitute produces are lower; and
•    quality and performance capabilities of substitutes are equal greater than those of the existing productions.

Entrepreneurs can offset the attractiveness of substrate product by differentiating their product in ways that are perceived by customers as relevance. Viable strategies might include price, product quality, product features location services, etc.

The various factors discussed above constitute external competition. It is also necessary to analyze competition between the firms existing in the incsdustry. Entrepreneur should seek answers to the following questions regarding competitors:

(i)    Who are the major competitors and what are their current market sahres?
(ii)    What are the main strengths and weaknesses fo the competitors?
(iii)    How are their products positioned interms of market segment or customer group?
(iv)    What are the pricing policies, distribution channels and promotion levels of competitors?
(v)    How are the major brands differentiated from the customers, viewpoint?
(vi)    What is the brand image of each competitor’s product?
(vii)    What customer needs are fulfilled, are threre any unfulfilled needs?

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