Normal goods are the ones where there is a positive correlation between demand and the economic environment. Think of steak: consumers who are flush with cash are more likely to order the most expensive menu items.
Inferior goods, on the other hand, are those where consumption increases when things go south. Think of potatoes: when disposable income falls, diets shift to lower-priced items.
Here is an excellent synopsis and graphical representation of how demand for these two types of goods is affected by macroeconomic factors:
The formal definitions of normal and inferior goods (and luxury goods as well) are based on elasticity – the measure of how much consumption rises (or falls) with an increase in income. And, in general, these classifications are meant to be applied to consumer products.
But, at the same time, these principles can be applied to any industry and product. And, as is evident from the recent rounds of earnings calls and related business reporting, many enterprise software companies are citing the economy as a cause for slowing sales and disappointing results. Indeed, many software products are showing themselves to behave normally – the economy hiccups, and prospects push off (or cancel) new initiatives and purchases.
Not always, though.
Gain finds itself in a fortunate situation for a variety of reasons:
- Our industry – U.S.-based insurers – dates back to the 19th century. This is an incredibly stable target market which has weathered far worse challenges than what we’re currently facing.
- We offer a compliance software solution. Compliance is not optional: carriers must use one of handful of vendors to complete a mandatory set of filings.
- We offer software with superior product-market fit. Quite simply, we have built a better mousetrap in a staid industry where our competitors have under-invested in innovating for over a decade.
In short, Gain has most definitely not experienced a slowdown in sales. Quite the opposite: new bookings are accelerating (while, importantly, our other SaaS metrics have held constant or improved).
At the same time, I expect that our competitors will cite economic headwinds for the downturn in their fortunes – a convenient, but not remotely accurate, excuse.