Substitute products are goods that can be used interchangeably. They have similar features and solve the same problems which makes them alternatives.

In this article, we’ll review the types of substitute products, tell how price changes influence them and provide examples.

Types of Substitute Products

There are two types of substitute goods: direct and indirect. Belonging to any of the groups depends on the degree of correlation between the products. If an item can be easily replaced by another one, it's a direct substitute. It means that this product can solve similar problems. Indirect substitutes imply products that are weakly correlated with each other, still, they can replace the main item.

Let's have an example to make the difference clear. Say, you're a member of a fitness center with a wide range of activities available. You visit twerk classes. The next time you come to have the training, you find out that your teacher is ill and there will be no twerk lessons. So, you have to choose which class to attend not to lose your money. If you choose reggaeton or vogue, this will be a direct substitute since these are dancing classes as well. If you choose swimming or go to the gym, this will be an indirect substitute.

Substitute products occur due to price changes. Let’s take a closer look.

Effect of Price Change on Substitute Products

If a relative price for a product increases, it makes consumers look for alternatives to save money. Hence, the demand for a more expensive item decreases. Substitute products cause competition on the market which is good since it both provides people with a choice and products at the best price and makes companies develop, improve and create innovations to stay competitive.

Substitute products are often compared to complementary products. Let’s see the difference between these two concepts.

Substitute Products vs Complementary Products

While substitute goods can replace each other because they serve the same functions, complementary products are items that add value to the main product or even can’t be used separately.

Let’s have some examples. On the right, you’ll see complementary goods.

iPhone — iPhone case
DVD — DVD Player
Eyeshadow — brush
Car — petrol
Mobile phone — sim card
Vinyl record player — records
Toothpaste — toothbrush

Some of these complementary products can’t be used without the main item, so if its price increases, the demand for a complimentary item goes down.

Now, we’ll remind you about famous substitute products.

Examples of Substitute Products

The following products are often used interchangeably by consumers since they either find them almost the same or the price for one product increases.

  1. McDonald’s — KFC and Burger King.
  2. Coke — Pepsi.
  3. iPhone — Samsung Galaxy.
  4. Pizza Hut — Domino’s.
  5. Playstation — Xbox.
  6. Butter — margarine.

Congrats, now you know what substitute products are, their types, changes caused by the price increase and have some examples.

References

  1. This article uncovers the impact of substitute products.
  2. This article provides a graphical Illustration of the substitution effect.
  3. This article explains why people choose substitute goods.
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