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 arecan replace us the usual products in the event that the cost of it suddenly increased, or the offer has sharply decreased. 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 coffee suddenly becomes too scarce, then what can we do? Let's have tea. Thus, substitutes are characterized by a direct relationship between the price of one product and the changes in its demand for another, which has homogeneous consumer properties.
How are substitute goods linked to demand elasticity?
According to the fundamental law of the economy, demandfor a given product (service) is inversely proportional to the change in its value. How big 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. elastic will not, because, whatever one may say, we simply have nothing to replace them with.
Sometimes due to exceptional circumstances, demandon a completely replaceable product with an increase in prices, it only grows. So, in the last century in Ireland, after a crop failure of potatoes, the price for 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 are constantly creating for the productthreat, because to replace it with something, it turns out, is always possible. 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. This step will provoke a decrease in demand for sweets and sales growth much cheaper caramel and marshmallow. But not the fact that the total profit of the factory from this will increase. Here it is necessary to carefully calculate and analyze everything.
Each firm wants the demand for the fact that itproduces, possessed 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 betrayed precisely the products of this enterprise, his trademark. The high quality of goods, their durability, reliability, environmental friendliness, continuous improvement of technology, and most importantly, the presence of some unique characteristics will make it possible to gain popularity and trust of buyers.
