Page 14 - Barclays Bank (B) Teaching Note

Threat of Substitute Products

When a new product or service meets similar customer

needs in different ways, industry profitability suffers. The

threat of a substitute product or service is high if it offers

a value proposition that is uniquely different from

present offerings of the industry. The banking sector is

large in term of products and services and is included in

the financial industry.

Barclays’ response to the Treat of Substitute Products /

Services:

• By being service oriented rather than just product

oriented.

• By understanding the core need of the customer

rather than what the customer is buying.

• By increasing the switching cost for the customers.

The variety of financial products and services, and the

possibility of substitute products is high in the financial

industry e.g. investing in a savings account or bonds, or

deposit account with interest. In addition, many financial

institutions, apart from banks, also provide a variety of

products that are similar to banks in terms of service to

customers. However, many products and services are

only provided by banks. Therefore, the threat of

substitutes is moderate.