A complementary good is a material or product that can be used in association with another good, with this joint usage often helping to create additional demand for both of the goods involved. Typically, this dual use of the two goods provides additional utility and satisfaction for the consumer, making it advantageous to continue purchasing both goods over the long term. One of the benefits associated with the production of a complementary good is that demand will normally increase in conjunction with the demand for the associated material or product.
The concept of a complementary good is different from that of a substitute good. In terms of substitutes, the focus is on replacing the use of one product with a different one that is able to fill the same needs and wants. In this scenario, there is no need for a companion product to increase the demand, just the desire to take away market share from the competitor and generate additional sales for the substitute product. By contrast, a complementary good is often designed to encourage greater consumption of that associated product, a strategy that ultimately means more sales and greater profits for both of the goods involved.
One of the easiest ways to understand what is meant by a complementary good is to think in terms of products that are often used together in order to create greater customer satisfaction. For example, jelly may be considered a complementary good for peanut butter, since the combination is widely popular in a number of cultures and settings. In like manner, potato salad may be considered complementary to the purchase of fried chicken, since the two are often viewed as being ideal fare for a picnic. Gasoline may be considered a complementary good to the use of a car, since the gasoline makes it possible to enjoy a greater degree of utility from ownership of the vehicle.
In many instances, the profitability of a complementary good is directly associated with the popularity of the associated good. As long as the demand is high for the associated good, there is a good chance that the complementary good will also enjoy brisk sales and produce revenue for the manufacturer. Should the demand for the associated good begin to wane, it is not uncommon for the sales of the complementary good to also suffer, unless the manufacturer can convince consumers that the product can also be used in conjunction with some other good that is currently enjoying widespread popularity.