What is a substitute good?

A substitute good is that good (or service) that is capable of satisfying the same need as another good. In that sense, it is the consumer's decision to be able to replace said good with another due to the functions it performs. The difference between choosing one or the other is the characteristics or the price of both. A good example for this type of goods can be sugar, and its substitutes stevia, honey, coconut sugar, etc.

The preferences of consumer they are very relative and depend a lot on the consumer, being the quality, the after-sales service and some characteristics of the product that differentiate one product from another. Although this is an advantage for the customer, it is a headache for companies as they have to try to capture customer service in new and different ways.

Substitute goods are perfectly competitive with each other, so it is important that we take into account what characteristics define it in order to try to differentiate something and not be as substitute as it seems.

Characteristics of substitute goods

Among the main characteristics we find that these goods have among themselves demands closely related, since the user is clear about which goods are the ones that can be easily replaced.

These goods represent, for their part, a cross elasticity of positive demand. By this we mean that when the price of this type of goods increases, the demand for one of its substitutes increases. And this characteristic is quite important, since it is related to the preferences of the consumer, who is capable of deciding which good to choose.

Therefore, when the price of one rises, the most normal thing is that, if we are not very obsessed with one good, we quickly switch to another (substitute, normally).

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