Inferior goods are those products whose demand decreases when people’s incomes rise. At first glance, this concept may seem counterintuitive, yet it makes sense economically. When incomes are low or the economy contracts, consumers may not be able to afford more expensive brands and items, so they shift to more affordable alternatives. This means the demand for products, brands and the quality of experience, such as taking the bus instead of driving a new car, decreases.

Inferior goods offer consumers an opportunity for cost savings, as well as a way to respond to economic disruption. During economic expansions, or when consumers have more money to spend, they tend to buy more expensive, higher quality items, known as normal or luxury goods, or spend more in other areas, like going on vacation. Therefore, inferior goods offer a cheaper alternative when money is tight.

Inferior goods can be found in almost all product categories. Examples of inferior goods include generic brands of food, lower-end cars, and lower-quality clothing. Other potential inferior goods are items used for entertainment, like tickets to live events or streaming services, and services, such as taxi fares over ridesharing.

With respect to business implications, understanding a product’s positioning in the inferior/normal/luxury goods matrix can help companies determine the best path for prompting sales and increasing market share. For instance, organizations selling luxury goods and experiences may have to lower prices or reframe the product/experience in order to attract budget-conscious consumers. Similarly, companies that specialize in inferior goods may need to offer quality and convenience in order to compete in markets where consumers are looking for more expensive items.

Overall, understanding the dynamic of inferior goods, and how they interact with other types of goods, is key to making informed decisions in the marketplace. Inferior goods offer consumers a way to save money, which can benefit companies that can quickly create products and services that meet this need. Furthermore, understanding the position of products and services in terms of the inferior/normal/luxury goods matrix can help companies differentiate their offerings and boost sales.