In one line
When two products are used together (complementary goods), the price of one can affect how a business prices the other.
The rule
Complementary goods are products that are used together, so the demand for one increases the demand for the other. Businesses often adjust the price of one to boost sales of both.
There is no single formula, but the idea is: If Good A and Good B are complements, lowering the price of A can increase the demand for B (and vice versa).
Let's understand it simply
Imagine you love eating samosas with chutney. If the price of samosas drops, you might buy more chutney too, because they go together. Businesses know this. So, sometimes they make one item cheaper to sell more of both. Think of a printer and its ink. If printers are cheap, more people will buy them, and then they must buy ink too.
| Standalone Good | Complementary Goods | |
|---|---|---|
| Pricing focus | Profit from single item | Profit from both items together |
| Example | A single t-shirt | Printer and ink |
| Strategy | Set price for one | Set price for both, often one low, one high |
How it works
- A business identifies two products that are complements (like tea and sugar).
- It checks how a change in the price of one affects the demand for the other.
- If lowering the price of Product A increases sales of Product B, the business may keep A's price low.
- Sometimes, the business makes little profit on A but earns more from B (like cheap razors, expensive blades).
- The business watches competitors and adjusts prices if needed to keep both products selling well.
- They may run joint offers (buy one, get a discount on the other) to boost combined sales.
- Identify complementary goods (e.g., printer and ink)
- Lower price of one good (e.g., printer)
- Demand for both goods increases
- Profit made on the complement (e.g., ink)
The story behind it
The idea of complementary goods was first discussed by economists in the early 20th century. The famous British economist Alfred Marshall talked about how some goods are linked in demand. Businesses noticed that selling one item could boost sales of another. For example, razor companies found that giving away cheap razors increased blade sales. This became a common pricing strategy in many industries.
Where you see it in real life
- Mobile phones and SIM cards: Buying a new phone often comes with a free or discounted SIM card. The company hopes you will use their service.
- Printers and ink cartridges: Printers are often sold at low prices, but ink is expensive. You need both.
- Pressure cookers and gaskets: A cheap pressure cooker means you will later buy replacement gaskets from the same brand.
- Scooters and petrol: If petrol prices rise, scooter sales may drop, so scooter makers sometimes offer mileage discounts.
- Cricket bats and balls: A sports shop may sell bats at a discount, knowing you will also buy balls and gloves.
- Tea and sugar: A tea shop may offer a sugar discount with every tea purchase to increase overall sales.
Why it matters
- Boosts total sales: Selling one item cheaply can increase sales of its complement, raising total profit.
- Customer loyalty: If you buy both products from the same brand, you may stick with them.
- Competitive edge: Smart pricing of complements can attract customers away from rivals.
- Used in many industries: From technology to food, this strategy is everywhere.
Worked example
Let’s say a company sells printers and ink:
Given: Printer cost = ₹2,000, Ink cost = ₹1,000
Step 1: Lower printer price to ₹1,000 (even if profit is low)
Step 2: More people buy printers
Step 3: Each new printer owner must buy ink (high profit)
Step 4: Total profit increases due to more ink salesCommon mistakes
- Thinking only about one product: Businesses must look at the pair, not just one item.
- Ignoring competitor moves: If a rival lowers prices on one complement, you may lose sales.
- Forgetting about customer needs: If complements are not truly needed together, this strategy fails.
- Setting both prices high: If both are expensive, customers may buy neither.
Remember it
When two things go together, making one cheaper can help sell more of both — like samosas and chutney!
Check yourself
What are complementary goods? Give one example from daily life.
Goods used together, like a pressure cooker and its gasket.
Why might a business sell one complementary good at a low price?
To increase sales of the other good and boost total profit.
If a company raises the price of tea, what may happen to sugar sales? Why?
Sugar sales may drop, because people buy less tea, so need less sugar.
Why is it risky to set high prices for both complementary goods?
Customers may buy neither, reducing sales of both.
Quick recap
- Complementary goods are products used together, like tea and sugar.
- Businesses may lower the price of one to boost sales of both.
- This strategy increases total profit, not just profit from one item.
- Common in technology, food, and daily life.
- Ignoring the link between complements can hurt sales.