A well (or service) complementary It is one that is used together with another. When the price of a product increases or decreases, this change also affects the demand for the complementary good. For instance: cars, fuels.
Many producers of mass consumer goods are associated with a certain brand or type of complementary good. For example, clothes washers that recommend a brand of detergent.
A substitute good or service (also called substitute) is one that is used to replace another. This means that substitute goods compete with each other in the markets. For instance: margarita, cola drinks.
Among the competing goods, the prices They are always defined taking into account the competition, since if two products offer the same characteristics but one of them has a significantly higher price, the demand for it will decrease.
The substitute goods They are proposed as alternatives to other products that already exist in the market, and use as a sales strategy to highlight some characteristic that the pre-existing product does not have. It can be a lower price, some superior characteristic (flavor, efficacy, etc.) or simply the fact of being a novel alternative.
Substitute goods can be:
- Perfect substitutes. It can be used in exactly the same way and with the same results as the pre-existing good. The user has no motivation to choose the pre-existing one. If the substitute has a lower price, the demand for the pre-existing good will significantly decrease.
- Imperfect substitutes. When two goods can be used for the same purpose, but without the same results.
Examples of substitute goods
- Margarine. Margarine is a good substitute for butter (lard). It was initially presented as a healthier and cheaper alternative to butter (because it is of plant origin). However, it has now been discovered that margarine also contains fats that are just as harmful as the fats in shortening.
- Fossil fuels. There are different ways of energizing means of transport. For private users, there are three different offers of fossil fuels for their cars: gasoline (naphtha), diesel (diesel) or compressed gas (CNG). Compressed gas has the advantage of its low cost, but it does not give the vehicle independence, since the tank lasts a few kilometers, which is why it is used by those who use the car in the city (taxis). Diesel is cheaper than gasoline, but diesel-powered cars are more expensive, so it is only worth the investment if the car will be used for a long time. Gasoline offers independence (as it offers the highest mileage per liter) but costs more.
- Different types of meat. In each region, depending on the livestock in the area, there will be lower prices per kilo for animals raised in nearby areas. Although price can be a determining factor when choosing the type of meat, there are currently other types of substitute goods, which appeal not to price but to quality, to the correct treatment of animals, and to the certification of being organic.
- Cola drinks. The various cola drinks define their prices in comparison with the best-selling one, in order to maintain a demand stimulated more by price than by quality (taste).
Examples of complementary goods
- Cars and fuels. The price of the various fuels motivates users to buy cars that allow the use of cheaper fuels. On the other hand, the high price of cars prepared to use diesel, discourages the use of this fuel.
- Playing music. The formats in which music is played radically change the demand for equipment. In this way, players have had to adapt to pasta discs (vinyl), cassettes, CDs, and currently mp3 and other digital formats.
- Audiovisual products. Similar to what happens with music, changes in the technology of audiovisual products change the equipment to reproduce them. The advent of VHS (video) was replaced by DVD, which is currently being replaced by streaming (online playback), which requires screens to have an internet connection. In addition, there are screens with higher definition that respond to the better definition of the available products.
- Programs and Devices. When buying a computer or a Smartphone, you choose those products that can be used with the latest programs and applications. The constant change in technology encourages the purchase of new products.