Substitute goods: concept, properties, examples

Surely, you have never even thought about what substitute goods are. Meanwhile, we, as their consumers, play an important role in changing market demand and supply. Which one?

So, substitute goods are those goods that can replace our usual products in the event that the price suddenly increases, or the supply decreases sharply. For example, if beef prices rise, then we will replace it with pork. If the juice in the packages becomes cheaper, then we will buy less soda. If suddenly coffee becomes too scarce, then we, what can you do, we will drink tea. Thus, substitutes are characterized by a direct relationship between the price of one commodity and the changes in its demand for another, which has homogeneous consumer properties.

How are substitute goods connected with the elasticity of demand?

According to the fundamental law of the economy, the demand for a particular product (service) is inversely proportional to the change in its value. How great is this dependence? Everything depends on such an indicator as "elasticity of demand". So, even if small changes in the price of the goods provoke significant changes in the demand for it, then it is customary to say that this product has an elastic demand. If the price of the goods has changed, but this has practically not affected the number of sales, therefore, the demand for such a product is "inelastic".

So what is this for goods with elastic demand? For example, you can take apples. Imagine that suddenly for some reason the price of these fruits has grown. Of course, apple fans will continue to buy them, no matter how much they cost. However, a significant number of consumers will simply switch their attention to pears or kiwis, for example, that is, substitute goods, or substitutes for goods. But the demand for shoes, medicines, gasoline, electric bulbs , etc. Will not be elastic, because, whatever one may say, we simply have nothing to replace them with.

Sometimes, due to exceptional circumstances, the demand for a completely replaceable product with an increase in prices only increases. So, in the last century in Ireland, after a crop failure of potatoes, the price of this root crop has increased. And since it was the main and favorite product in the diet of local residents, there was, in principle, no decent replacement for it, and people were not frightened by the high price. They simply began to allocate less money from their budget to buy more expensive food (fruits, vegetables, meat), resulting in a growing demand for potatoes.

Substitute goods constantly create a threat for the product, because it is always possible to replace it with something. Managers and marketers must certainly pay proper attention to this problem. So, if the factory, for example, decides to raise the price of a box of chocolates, it is not a fact that it will achieve this growth in revenue. Such a step will provoke a decrease in demand for sweets and sales growth of much cheaper caramel and marshmallow. But it is not a fact that the total profit of the factory will increase from this. Here it is necessary to carefully calculate and analyze everything.

Each firm wants that the demand for what it produces has minimal elasticity, because under such conditions it becomes possible from time to time to increase prices and not be afraid that buyers will find a substitute in the form of more affordable goods. One of the measures that allows you to achieve what you want is to conduct "educational" activities in relation to the buyer, as a result of which he will be devoted precisely to the products of this enterprise, his trademark. High quality of goods, their durability, reliability, environmental friendliness, constant improvement of technologies, and most importantly, the presence of some unique characteristics will make it possible to gain popularity and trust of customers.