Substitute products can be classified into two main categories:

1. Perfect Substitutes: Perfect substitutes are products that are nearly identical in terms of their utility or ability to satisfy a particular need or want. Consumers view these products as completely interchangeable. For example, two brands of bottled water with the same quality and price would be considered perfect substitutes.
2. Imperfect Substitutes: Imperfect substitutes are products that are similar but not identical. Consumers may have a preference for one over the other based on factors such as quality, brand, features, or price. For instance, margarine and butter can be considered imperfect substitutes because they both serve as spreads but have different flavors and characteristics.

The concept of substitute products is important in understanding consumer behavior and market dynamics. When analyzing the demand for a particular product, economists often consider the availability of substitute products, as changes in their prices or attributes can impact consumers' choices and affect the demand for the original product. Additionally, businesses may consider substitute products when making pricing and marketing decisions to remain competitive in the market.