Difference Between Substitute Goods and Complementary Goods

Edited by Diffzy | Updated on: May 14, 2023

       

Difference Between Substitute Goods and Complementary Goods

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Introduction

There are two different types of commodities accessible for consumption on the market: substitute goods and complementary goods. In microeconomics, both of these categories of goods are governed by the concept of demand. Considering both play a significant role in the buying habits of consumers, one must understand the meaning of both sorts of goods. All goods and products are produced with the end in mind of satisfying customer demands. There are numerous items accessible on the market, but only those that the consumer desires are consumed. There are numerous different types of items that have contributed to this consumption habit. Demand for a product may be adversely affected by price increases and other comparable items, which include alternative goods and services. Yet we shouldn't consider the two items to be the same thing because complementary and alternative goods differentiate themselves from one another.

Substitute goods vs. Complementary goods

The primary distinction between complementary and substitute products is that, as contrasted with complementary goods, substitute goods happen to be eaten when combined. It is impossible to consume items that complement one another alone; they must constantly be consumed jointly.

In contrast to complimentary products, which rely on other items for both their sale and consumption, substitute goods are autonomous and do not depend on the sale of other goods.

Difference Between Substitute Goods and Complementary Goods in Tabular Form

Parameters of comparisonSubstitute goodsComplementary goods
MeaningSubstitute goods are those goods that can be used in place of each other.Complementary goods are those goods that complete each other.
DependencyIn this goods are independentIn this goods are dependent on each other for consumption.
SlopeThe slope of the demand curve is upward-slopping.The slope of the demand curve is downward sloping.
ImpactIt has a direct impact.It has an indirect impact.
DemandDemand for substitute goods increases with a price increase and similarly, decreases with a price decrease.Demand for the complementary good decrease with an increase in the related good and vice versa.

What are Substitute Goods?

The definition of a substitute is an equivalent item that takes the place of the original. We should be clear on our concept of demand before we get into goods that are replacements.

 In microeconomics, demand is defined as the willingness of customers to purchase any goods or service at a price decided by the manufacturer. And substitute goods are those goods that are easily available in the market to replace the need for other products. The demand for one product can be easily influenced by the price of another product. Examples of this include white bread and brown bread can be used interchangeably, as could Coca-Cola and Pepsi, tea, and coffee. Consumers are going to switch over promptly to a competitor's commodities if there are even the smallest modifications in the selling price of one good. When it comes to creating a sale in the marketplace, there is a lot of animosity from individuals who operate in the same industry, frequently regarded as homogeneous items. On the market, there are already alternatives. Pepsi and Coca-Cola, both well-known brands, are currently in direct competition with one another. There are many possibilities available to a consumer. Not only in beverages but substitute products are available in every sector such as fashion, clothing, cosmetics, etc. As a consequence, it would be challenging for the marketer to survive. The issue of replacement goods can be readily overcome with the implementation of successful advertising techniques.

There must be a reason why the customers decide to choose the other product. The following are some reasons:

  • Income
  • Availability of the product
  • Price
  • Advertising
  • Change in preferences

Income

The importance of income cannot be overstated. If the customer's income rises, he is unlikely to look for a substitute product in the market. However, if the consumer's revenue tumbles, he will most probably opt for a substitute product. As an example, suppose that the customer normally purchases brown bread but recently adapted his purchasing routine so he currently prefers white bread. Brown bread costs a bit more than white bread. Additionally, there is always a reverse connection.

Availability of the product

A product needs to be able to be consumed by the customers to be able to be sold. Competitors will make an effort to offer something different if the product is not available close to the consumer. The sale of substitute products is expected to increase as an outcome. As a result, a marketer must take into account the accessibility factor and tailor his or her strategy according to the requirements of the consumers they are targeting. Customers are inclined to purchase items that are readily available to them, it is a fact of life.

Price

Pricing possesses an essential function in economics. "Price" is the first issue that comes to our minds whenever we're talking about either buying or selling something. Additionally, there will be a shift towards the substitute items if the price of the replacement product falls. The retail price of the good and the amount of money that consumers want it are constantly inversely proportional. When the cost of a good increases, fewer consumers are likely to purchase it, and the contrary is true if the price drops.

Advertising

 Marketer knows the value of advertising. But advertising is only successful if done correctly otherwise it is a waste of resources and effort. If done correctly it can do wonders and attract a large number of customers. Advertising not only helps in gaining new customers but also helps in retaining old customers. It helps in reminding about the product. If a product is related to kids then the advertising should be creative enough to attract them. Children can be easily attracted by advertisements. So it’s up to the correct techniques of advertising and targeted market segment.

Change in preferences

Changes are going to occur spontaneously over time. The causes for an alteration in preferences might vary, including a change in taste or fashion. People are readily attracted to new fashions and trends, which stimulates them to make changes in their purchasing patterns. Customers must therefore be periodically reminded of the positive aspects of a product through marketers. Owing to the premise that clients are very impressionable and are quickly swayed by tempting incentives such as reductions in prices and freebies.

Every industry generates substitute goods; they do not have characteristics specific to any particular market. One of the businesses whose goods are imitated as soon as they are introduced to the market is the fashion and cosmetics sector.  Because it is one of the largest and most well-known premium brands in the beauty industry, brands like MAC have an outstanding track record or grip in the eyes of consumers. It can be challenging to identify alternatives to it.  However, parameters influencing buyer behavior have the potential to adversely affect these industries. Consequently, efforts must be made to maintain clients and prevent them from getting lured to the product of the rivals.

What are complementary goods?

Products that act in tandem or with one another are referred to as complementary items. These can be alluded to as dependent goods because they are directly impacted and are unable to function independently. It goes without saying that if demand for one product expands, demand for other products is going to rise as well, and vice versa.  Whenever complementary commodities are involved, the cross-elasticity of demand can have a detrimental impact. When one good's price increases, demand for other commodities also declines, which affects all other goods. From a single item to a different one, the cross-elasticity of demand varies. In contrast to higher-value commodities, the influence of a lower-value good will be less noticeable. These are the manufactured products.

Here are some examples of complementary goods that are consumed together such as:

  • Bread and jam
  • DVD and DVD players
  • Toothpaste and toothbrush
  • Cellphones and accessories

The manufacturer's strategy for the complementing products is to allow them to perform best when used in tandem. They have been successful in leaving what they want on clients' minds thanks to marketing's ongoing assistance.  To effectively sell a good or service, one should be original. Only if we possess the associated products can we consume the product. Pen and ink, for instance, can be offered together as a set, but other times, we have to purchase an independent product to receive the advantages that come with it. However, it has become a big business in the past couple of decades. Complementary commodities are typically thought of as bundled deals. As we are previously aware, some things are complementary, and if the second product fails to be acquired, the one before it will cease to function.  Cellphone accessories are separately offered by and are priced a lot more by corporations like APPLE. Customers are compelled to pay such high prices for the requisite accessories. They are required to spend money on the ancillary item considering the main product will become unusable without it. The supplemental goods could potentially be considered to be secondary goods or a complement to the core goods. Because of the degree to which the second product's use relates to the initial significant product, the main product will be thought of as a base product.

Complementary good’s impact on the market with the help of examples is as follows:

  • Camera and lens: Both the camera and the lens that it uses are necessary for their proper functioning. The cost of the lens tends to be substantially more than that of the camera. The lens has a bearing upon the camera's price worth as individuals. These two items represent an excellent pair and cannot be separated.
  • Petroleum and automobiles: The petroleum industry is super expensive. According to resources the largest consumer of the petroleum industry is the automobile industry. Without petroleum products, the automobile industry will become extinguished. The automobile industry is dependent on the petroleum industry to survive.
  • Printers and ink cartridges: Although they are offered separately, these goods combine to produce what is needed. Consumers are obligated to buy ink cartridges at a particular price as a result of their high price tag.

Cross-price effect

There will always be a cross-price effect when we talk about related commodities, such as alternative goods or complementary goods. Only connected commodities, not unrelated ones, are responsible for their occurrence. Concerning the notion of the "cross-price effect," once the price of one good changes, the demand for another one is also going to alter. Positive cross-price effects and negative cross-price effects are the two different kinds of cross-price.

Difference between substitute goods and complementary goods in points

  • Contrary to complimentary products, which don't genuinely complete one another but can be utilized to replace one a different one, substitute goods are those that can be implemented in this way.
  • The complementary commodities are consumed with each other when compared to the substitute goods, those that are consumed in place of one another.
  • The substitute products are self-contained, whereas the supplementary goods are reliant.
  • The slope of the demand curve is upward, whereas the inclination of the demand curve is downward.
  • The substitute goods have a positive cross-price effect whereas complementary goods have a negative cross-price effect.
  • Water, soft drinks, tea, and coffee are all acceptable choices in place of each other.  While furniture and wood are complementary products, automobiles, and gasoline are incompatible.
  • In contrast to complementary items, which enhance sales across the board, substitute products decrease the overall revenue and earnings of those who compete with them.

Conclusion

In conclusion, it can be claimed that both complementary goods and substitute goods are concepts of demand considering everything that has been described previously.  The cross-price effect has two results, which are both.  Commodities are substitutes for one another if the cross-price effect is positive.  Additionally, items are referred to as complementary goods if the cross-price effect is negative. A market is made up of complementary and replacement items. Both products provide businesses with something to sell and keep the market active. Marketing professionals use an assortment of tactics to draw prospective clients while retaining their existing clients.  Customers take advantage of rivalry among competing companies. They can pick up high-quality things at the most reasonable price.


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"Difference Between Substitute Goods and Complementary Goods." Diffzy.com, 2024. Thu. 13 Jun. 2024. <https://www.diffzy.com/article/difference-between-substitute-goods-and-complementary-goods-1342>.



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