By David Fuller, Fractional CMO

As a Fractional CMO, the first tasks I have is to audit a brands competitors. Often, when talking to a founder or a CEO they point to two or three other companies that look exactly like them, or arrogantly assume they have no competition.

Your market is not just the quadrant of tools that categories themselves the same way. Your competition is anything that provides your customer with the same utility as you.

Market Economics 101: The Substitution Effect

In classical economics, the Substitution Effect occurs when a consumer replaces a more expensive or less accessible item with a cheaper or more available alternative as prices or circumstances change. This is linked to the Cross-Price Elasticity of Demand which measures how the demand for your product changes when the “price” of a substitute product changes. e.g. How much does reduction of the price of electric vehicles affect the demand for petrol powered cars?

Beware of Mistaking Categories for Markets

Your market is should be defined at a utility or benefit level. While petrol powered sedans might be looking at EVs as competition, they might not prepare for customers switching to ‘mobility’ solutions or a radical public transportation policy shift that makes taking the train more attractive than owning a car.

What is the real benefit that you provide your customers? How else could they solve that problem? Is it really a problem at all in their minds? Just because you can use a new technology to do something, should you? Which leads us into …

The “Better Mousetrap” Fallacy

Marketing history is littered with superior products that failed because they ignored the “Status Quo” as a substitute. If the utility of your product doesn’t outweigh the ease of doing nothing, nothing wins every time.

Let’s use Excel as an example. Why are your potential customers still using Excel to run their business? Because it works for them. You see a problem with using Excel, but your customers can live with it, especially if your alternative requires a significant investment in setup, migration and training.

Do not underestimate your customer’s ability to do the math. Just because you can give them a cost saving in one area, doesn’t mean they spend less money over the lifetime of the product. e.g. ‘Our license fee is cheaper, but you need to hire our developers to make any changes at a premium hourly rate’ or ‘I can replace my handset for less than the cost of your subscription extended warranty'.

The CMO Substitution Playbook

Stop comparing yourself to your peers. Start comparing yourself to the alternative ways your customer solves their problem today, even if that alternative is a spreadsheet or a shrug.

1. Map Your “Utility Rivals” - Stop looking at your competitor’s feature list and start looking at your customer’s workflow. Ask: “If our product vanished tomorrow, what would they use instead?” If the answer is “WhatsApp,” then your marketing needs to address what WhatsApp is actually costing them in the long run.
2. Monitor Cross-Price Elasticity - If the “cost” of using a substitute drops because of a new AI tool or a sudden increase in supply or a scientific breakthrough, your demand will fall, even if you haven’t changed a thing. You must stay aware of how external factors make substitutes more attractive.
3. Market Against the “Alternative,” Not the “Rival” - Shift your messaging from Brand vs. Brand to Solution vs. Status Quo. That being said, you still have to differentiate against others who are offering the same solution as you. Solve for the friction of the substitute, and you’ll find the budget.