In college Macroeconomics classes you learn about 3 different types of goods. They are Inferior, Normal, and Luxury items. When you choose your investments it is important to understand the difference between these goods.
During different economies, each good will perform differently. Think about the last time you bought something. Do you buy the product that is the cheapest or do you buy the good that will fit your needs? I am guessing you buy the quality product that suits your needs and wants even if it is more expensive. I will break these terms down and give you examples of companies that produce each of these goods using the hotel industry.
The economic definition of inferior goods is items that are no longer demanded when our income levels rise. The concept is that these businesses try to compete on price. This doesn’t mean that they go bankrupt when people’s income levels rise. They always have a market but the market shrinks during prosperity cycles.
There are brands in the hotel industry who compete on price. There is the Budget Inn or the Motel 6. These hotels have their place in the market. Everyone understands that they can get a room at these hotels at 39.99 per night. They don’t offer the best value and service as we move up in price to other hotels.
An economist considers a normal good a product or service that sees increased sales when someone’s income increases. These are goods and services that someone with the average income would use.
If we go back to the hotel example, this would be a higher tier product. This company would provide more value than and better service. The price will also be a jump up. A great example of these types of hotels would be the Courtyards by Marriott. These rooms cost $100.00 per night. They provide value through offering higher customer service. and more amenities. People expect to get more quality for their money.
Some of the other goods that could be considered in this range would be stores like Target, Chili’s, or Macy’s. These are going to be places that have better products and customer service. They don’t necessarily compete for the price conscious customer.
Luxury goods are considered the top good or in the industry. There is going to be a shortage of these products which creates a higher demand for them. Also, these products are unreachable by some customers.
If we are talking about hotel rooms than a luxury good would be the top of the line good made by one of the top companies. If we use Marriott again, they are the largest hotel in the world. They sell luxurious apartments and hotel rooms. People pay $400 to $1000 per night because they want the experience. They don’t need a room that expensive.
If we think of other luxury goods, many of them are rare. For example, Mario Latorre produces a full alligator bag. There are obviously, cheaper bags but people buy these because they are rare and high quality. Another example would be the Chevy Cadillac. There are cars that will do the same job, but a technician will treat you completely different than if you pull up in a Cobalt.