Final answer:
Substitute products or services can significantly impact demand for an organization's offerings, and companies can fight this threat by differentiating their products and services, fostering brand loyalty, and maintaining high quality and competitive pricing.
Step-by-step explanation:
The threat of substitute products or services is a fundamental concern for organizations because substitutes can decrease demand for their products. A classic example of this threat is how the availability of electronic books has led to a decrease in demand for traditional printed books. As another example, the fall in prices of tablet computers and the corresponding increase in their demand have resulted in a leftward shift in the demand curve for laptops, depicting a reduction in laptop demand.
Organizations can combat the threat of substitutes by creating product differentiation, high levels of brand loyalty, improving product quality, adding features to products, offering better customer service, or developing a competitive pricing strategy. For instance, a gas station might differentiate itself through additional services like coffee shops or car washes. Similarly, a restaurant might create a unique brand identity with signature sauces or recipes, and a laundry detergent company might strive to maintain a strong reputation for quality to keep customers from turning to competitors.
The consequence of not effectively managing the threat of substitutes includes reduced profits for businesses, which could even lead to closure, and consequently, a loss of income or jobs for workers.