Nowadays,
there are more and more products that have the same characteristics
as the original product. As a result consumers become confused and
competition amongst products increases. Substitute products have a
direct influence on the price of products.
There are
products like petrol or cigarettes that can't be substituted. Therefore,
consumers should accept the price of these products. It is said that
demand is inelastic with respect to price.
Other products,
like those related with communication (courier companies or telephone
companies) have found that during the last couple of years, the competition
of substitute products has appeared because of new technology, like
for example, e-mail. As a result, consumers are more sensitive to
price, which is why it is said that demand is inelastic with respect
to price. In this case, prices decrease and the profit margin is scarse,
as the competition is between the quality and the price of the product.
However,
consumers don't always buy a substitute product because of its price.
The relationship between the consumer's trust with a produt is greater
when their needs are more complex. In this case, the consumer doesn't
mind paying more for a product that it already knows which gives it
optimum results, instead of risking buying a new product, even though
it is cheaper. The original product (the more expensive one) will
benefit when the substitute product is a bad copy and cheap at the
same time. In this case, the relationship between the product and
the consumer is reinforced. Designer clothes and perfume immitations
are clear examples of what we are talking about.
