The substitute competition

On a Product Managers #Slack group, a participant asked the following question:

Hi, everyone… I’m confused about the differences between the direct competitor and the substitute competitor. In my opinion, if A is a substitute of B, it must be the direct competitor. Hope someone could give a detail example to explain it . Thanks in advance.

Usually if you are a product manager or an Entrepreneur, you should be aware of your competition and be able to assess the differentiation between your product and the ones that refer to the same market segment you are, often by using a so-called Feature Table.

But if things are pretty clear when we talk about direct competitor analysis, there is a grey area that not everyone in the market is considering, and that is the substitute competition, often referred to the substitute product a company is offering in the market.

In order to exemplify things, I used the following example:

“… my point is that you need to think about market segmentation for a company. If I am selling luxury automatic watches, my buyer personas are wealthy men, women with attention to details. In this case, CASIO for me is not a direct competitor, because their target market is different from mine — I am probably not interested so much in CASIO buyers as they are looking for another kind of “experience” and surely another kind of product. Nevertheless, both my company and CASIO fulfill the same basic need — having a watch to tell the time. In this case CASIO is a substitute competitor because they fulfill the same basic principle but in a different way — they don’t compete with me directly in the market. Despite this, I may want to keep an eye on them, in the case they succeed in converting my customers or they want to become direct competitors in the future with some new products. Hope this helps!”.

In the software industry, I like to refer to a domain I know quite well… the Customer Relationship Management. In this domain Salesforce.com is for sure the undiscussed leader in the market… if you have some doubts, you can refer to the picture below, showing the Salesforce market share up to 2015.

Even if you don’t know anything about the CRM market, just by looking at the picture you understand that companies like SAP, Oracle and Microsoft are direct competitors because they offer a very similar product that try to solve the same issue (managing customers! — CRM) in a very similar way. It’s not by chance that when a company evaluates a CRM system to manage the relationship with their customers they often ask experts to make a best-fit-analysis by comparing the products of the above vendors and how they match their business model.

In this scenario, an interesting indirect competitor could be Hubspot..

Despite many people get confused and usually tend to directly compare Salesforce with Hubspot, my standpoint is that Hubspot offers a solution to almost the same problem but in a different way and for a different target customer group.

As a matter of fact, Hubspot was born mainly as an Inbound marketing platform, that is offering a software that simplifies a company’s effort to attract buying personas by automating content creation, distribution, lead capture and management, while measuring ROI. Only in the last years Hubspot introduced also a CRM solution that integrates with their marketing platform and approaches the Sales process by offering lots of automation, from visualizing your sale pipeline in a dashboard, to automatically log sales activities and summarizing all leads interaction in one place.

So, from indirect Salesforce.com competitor, Hubspot has also entered the potential competitor segment or even the direct one — if you consider their CRM solution is free, you might want to keep a eye on these guys.

So we have seen direct, indirect and potential competition against Salesforce.com. But what about the main topic of this article, that is the substitute competitor?

In this field, that’s a pretty tough question and one I would like to open a discussion on and have your input. Which company offers a product that solves the same core problem as Salesforce.com but it’s not targeting the same customers and with a quite different proposition?

Google offers many tools, above all to SMEs, to manage your business and potentially the relationship with your customers, but has no real direct competitor product in the CRM field, does it? Google is a real interesting case from this point of view and one I would bet to potentially become a direct competitor of Salesforce.com. If you think about it, apart from the obvious huge customer base, Google can also rely on having already its own Platform as a Service (PaaS) as Salesforce relies on its Force.com. It would be just a question of putting some existing tools together and introduce a new application that leverages those functionalities in a “CRM consistent way”. But are they interested in such a market?

So what’s your standpoint? Do you have better examples to identify substitute competitors? And, in the case, what would you see as substitute competitor example for Salesforce.com? Please use the comments below!