What Is a Complementary Product?

Complementary products refer to the existence of a certain type of consumption dependence between two commodities, that is, the consumption of one commodity must be matched with the consumption of another commodity. Generally speaking, an increase in the price of a complementary product will result in a decline in the demand for that product because of a decline in the demand for the complementary product.

Complementary products

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Complementary products refer to the existence of a certain type of consumption dependence between two commodities, that is, the consumption of one commodity must be matched with the consumption of another commodity. Generally speaking, an increase in the price of a complementary product will result in a decline in the demand for that product because of a decline in the demand for the complementary product.

Complementary products

Potter of strategy summarizes the factors that affect industrial competition into five kinds of competitive forces, namely entry threats, substitution threats, and buyer bargaining

1. Increase product value and differentiate products

Complementary products often affect the performance of the product or the overall value of the business to the customer. Just as toner affects the copy quality of ordinary copiers, and well-designed software can improve the performance of personal computers, concessions to run food can significantly affect customer satisfaction with a highway. Combining several complementary products that do not perform well individually can often greatly increase customer satisfaction and allow the product to gain differentiated advantages. From MS-DOS to Windows, most of Microsoft's products are not the best. Many people still claim that Apple products are the most individual. Still, Microsoft is firmly in the position of industry leader. The reason is because Microsoft provides hardware manufacturers with a computer language that is immediately available, easy to use, and not very expensive, and Microsoft has attracted a large number of application software developers to its operating system when operating system operations. By developing applications, Microsoft has effectively increased the value of its products to customers.

2. Gain synergy

Companies that produce complementary products can share intangible assets such as brands and some activities in the value chain. For example, when the Coca-Cola Company cooperated with McDonald's, the good reputation of the two companies ensured the credibility of the combination of complementary products such as cola drinks and hamburgers. For another example, the same logistics system can be applied to the delivery of products and their complementary products, or both can share the same ordering system; since complementary products are sold to the same customer, opportunities for sharing various resources often exist. Because the support of complementary products has a significant impact on the acquisition of competitive advantages of enterprise products, complementary product strategies have been widely used in modern commercial warfare.

(1) They are linked or can be linked in the buyer's mind.

(2) They have a significant impact on each other's competitive position. Finding complementary products of strategic importance requires strategic decision makers to have good judgment. The strategic importance of complementary products changes with the evolution of the industry, the industrial structure, and the rationality of consumer consumption.

First, it is necessary to understand complementarities and complementarities correctly and comprehensively.

Complementers are those participants from which consumers can purchase complementary products or suppliers can sell complementary resources to it. Complementary products and complementary products are always relative. The same product has different complementary products and complementary products for different subjects and different purposes of the same subject. For ordinary tourists, the villas and hostels around the water village may be the relationship between substitutes; for more "professional" tourists who have high pursuit and appreciation of the similarities and differences of the scenery, the villas may Complementary products for hostels.

The relativity of complementarity and complementary products is also manifested in the fact that complementarities may be suppliers, customers, or competitors in the same industry, and may not have direct commercial relations with each other. For example, American Airlines and United Airlines, although they are competitors in the industry and they are a substitute for passengers, became complementary when they decided to update their fleet. That's because aircraft maker Boeing can only make up for the cost of designing a new model if a significant number of airlines buy one. Because each airline can effectively finance other airlines to purchase aircraft, in this case the two are complementary.

Second, identify which products are complementary to the company's products

Clarify which products are complementary products of the company's products, and on this basis, identify complementary products of strategic importance. The relativity of complementary products and complementors gives us a useful revelation that a particular product may have many complementary products corresponding to it. Therefore, searching for various complementary products of enterprise products with an open perspective has become the first task that we must complete when establishing complementary product strategies. In this regard, Porter gave a vivid example, he pointed us to a series of complementary products of housing. Since any product has a considerable number of potentially complementary products, it is necessary to distinguish between those that are strategically important and those that are not.

If a product and its complementary products are in a mature market, then when consumers have a high degree of rationality, because consumers have relatively complete product knowledge, manufacturers strengthen consumers' understanding of the relationship between complementary products. It is relatively difficult, so it is often difficult for these two products to establish strategic importance. As we all know, washing machines and washing powders are typical complementary products for laundry people. But in today's market, are they complementary products of strategic importance? Our judgment is that the washing machine produced by one company and the washing powder produced by another company are not of strategic importance, and the relationship between them is not close. Consumers today tend to make independent purchase decisions for both, and they have their own independent brand preferences for washing machines and washing powders. At this time, the combination of A-brand washing machine and a-brand washing powder recommended by the manufacturer may not work. For another example, in a market that is not yet mature, consumers who do not know much about product information account for the vast majority. At this time, companies can easily strengthen consumers' subjective perception of complementary product connections through advertising and other methods. As a result, it is possible to establish the strategic importance of complementary products; on the other hand, in a mature market where consumers with sufficient product information account for the vast majority, the close relationship between complementary products is more difficult to establish.

Third, dialectical view

Dialectical view of the relationship between the company's products and complementary products. At different stages of industrial competition, an appropriate complementary product strategy should be selected based on the comparison of the competitiveness of competitors, suppliers, customers, substitutes, and complements in the industry. A common misconception is to treat complementary and complementary products as just friends. This problem-oriented perspective ignores its symmetry. Although there are obvious cooperative factors acting on the complementarity, there will also be a competitive factor interacting on the complementarity. When companies and their complementers come together to create value, the relationship between them is a cooperative relationship; when they begin to distribute added value, the relationship between them is a competitive relationship. In any space-time environment, creating value and distributing value are two sides of the same coin. Therefore, the relationship between a company and its complement is a competitive relationship. When the industry is growing rapidly, the added value is rapidly increasing. The focus of attention between companies and their complementers is often bigger the cake. At this time, the cooperative side is more obvious. Focusing on getting a larger share of the "cake", the competitive side of each other is exposed.

Considering the coexistence and co-prosperity relationship between complementary products, when the industry where the complementary products are developed is not high, enterprises need to provide complementary products themselves or support other enterprises to produce complementary products. The world-renowned companies Kodak, 3DO, Microsoft and other companies provide us with classic cases in this regard. To expand film sales, Kodak encouraged manufacturers to enter the camera industry with the same film specifications. 3DO has a 32-bit CD-ROM hardware and software technology required for next-generation audiovisual games. In order to sell software, 3DO's strategy is to transfer production hardware technology licenses when more hardware cannot be used in the early hardware. This action has attracted companies such as Panasonic, Venus, Sanyo and Toshiba. The entry of many manufacturers has forced hardware producers to compete in price, which has reduced the price of the complementary product of hardware. In addition, 3DO found that in order for the market to generate purchasing power, hardware must be sold below the cost price, and hardware producers will not do so. As an attraction, 3DO now gives them 2 shares of their own company after each machine is sold. 3DO's strategy has effectively increased customer purchases of hardware, which has led to better sales of software products.

Fourth, create competition

Creating competition in the complementary product market is another important aspect of the complementary product strategy. Increasing the number of manufacturers in the complementary products industry is an effective way to improve the company's ability to control and negotiate with complementary products. A special case of this is that companies enter the complementary products industry themselves. In the early stage of development, due to the limitation of the amount of remaining resources, companies often cannot enter the complementary products industry in a diversified manner. However, after the enterprises have established their dominant position in the industry, they have more surplus resources in order to High profits, companies can consider the issue of entering the complementary products industry. Microsoft's infiltration into the application software industry and Microsoft's IE challenged Netscape's Netscape. Essentially, Microsoft started to produce complementary products and demanded added value from the complementary products industry.