A product mix is the set of all products and items that a particular seller offers for sale. A company’s product mix has the certain width, length, depth and consistency.
The width of a product mix refers to how many different product lines the company carries. The length of a product mix refers to the total number of items in a particular product line. The depth of a product mix refers to how many variants are offered of each product in the line.
The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.
Product line decisions: In offering a product line, companies normally develop a basic platform and module that can be added to meet different customer requirements.
Product line length: A product line is too short if profits can be increased by adding items; the line is too long if profits can be increased by dropping items.
Line stretching occurs when the company lengthens its product line beyond its current length.
Down market stretch: A company position in the middle market may want to introduce a lower price line for any of three reasons:
The company may notice strong growth opportunities down the line.
The company may wish to tie up lower end competitors who may otherwise try to move upmarket and thus offer low-priced offering.
The company may find that the middle market is stagnating or declining.
Upmarket stretch: Companies may wish to enter the high end of the market for more growth, higher margins or simply to position themselves as full-line manufacturers.
Two-way stretch: A company serving the middle market might decide to stretch their line in both directions.
A product line can be also be lengthened by adding more items within the present range e.g., Maruti introduces Alto in between Zen and 800.
Product Line Decisions
Product Line Decisions: Many companies start as a single product item or product line business. After getting a taste of success and with an availability of more resources, companies decide to expand their product line and/or introduce newer product lines in consonance with market opportunities or in response to competitors’ moves. For example, for quite some time, Nirma had only a single detergent brand and subsequently added a new product line by introducing a bathing soap. HLL realized the serious threat from Nirma washing powder and introduced cheaper versions of detergents.
Companies make decisions that concern either adding new items in existing product lines, deleting products from existing product lines, or adding new product lines. Another aspect relates to upgrading the existing technology either to reduce the product costs or to improve quality, for stretching (downwards, upwards, or both ways), or line filling.
Product managers need to closely examine the sales and profits of each item in a product line Decisions. The findings will help them decide whether to build, maintain, harvest, or divest different items in a particular product lineDecisions.
Line Stretching: Product lines tend to lengthen over the years for different reasons such as excess manufacturing capacity, new market opportunities, demand from sales force and resellers for a richer product line to satisfy customers with varied preferences, and competitive compulsions. Lengthening of lines raises costs in many areas and decisions are based on a careful appraisal. However, at some point in time somebody, often the top management intervenes and stops this.
Downward Line Stretch: Companies sometimes introduce new products with an objective of communicating an image of technical excellence and high quality and locate at the upper end of the market. Subsequently, the company might stretch downwards due to competitor’s attack by introducing a low-end product in response to a competitive attack, or a company may introduce a low-end product to fill up a vacant slot that may seem attractive to a new competitor. Another possibility is that market may become more attractive at low-end due to faster growth rate. For example, P&G introduced its Ariel Microsystem detergent at the high-end assuring high quality. Customer response was not encouraging and the company saw more opportunities at a lower end and introduced cheaper green alternative Ariel Super Soaker. Mercedes have offered its E-Class model to compete at much lower price point than its high-end S-Class models.
Downward stretch sometimes poses risks: For example, low-end competitors may attack by moving into high-end, or for a prestige image company introduction of a low-end model may adversely affect its product-mage. Parker pen stretched downward and introduced ballpoint pen at low-price. This hurt Parker as a high-class product. Another risk is that introducing a lower-end item might cannibalize (eat away sales) the company’s high-end item.
Upward Stretch: In this situation, companies operating at low-end may opt to enter high-end because of better opportunities as a result of faster market growth, or the need to create an image of the full line company. For example, Videocon entered the market with a twin-tub low-end washing machine. Subsequently, after the introduction of IFB automatic washing machine and entry of other players the market expanded. The average household income of middle class also showed positive trends. To take advantage of a market growing at the higher-end, Videocon also introduced an automatic washing machine. Maruti Udyog introduced its medium-priced models such as Maruti Zen, Maruti Esteem, WagonR, Alto, and Swift after it had entered the market with its low-end Maruti 800 and Maruti Omni. Toyota introduced its Lexus luxury car as a standalone product (with no outward link to Toyota) for just this very reason. It did not want it to be in any way affected by Toyota’s no doubt superb, but mass market image.
There may be certain risks associated with upward line stretching. These may include prospective customers’ perceptions that the newcomer in the high-end category may not produce high-quality products, or competitors already well established in the high-end market may retaliate by introducing items in the low-end of the market. For example, long established footwear company Bata failed in its attempt when it tried the upward stretch and finally introduced its Power line of economical sports shoes.
Both-Way Stretch: Companies operating in the medium range of the market may decide to stretch product line(s) both ways for reasons of opportunities arising in different market segments. The main risk is that it may prompt some customers to trade down. However, companies often prefer to retain their customers by providing low-end alternatives rather than losing them to competitors.
Line Filling: A company may decide to lengthen the existing product line Decisions(s) by adding more items. The possible objectives leading to line filling may include realizing incremental profits, meeting dealers’ demands in response to their complaints that they lose sales because of missing items in the lines, excess capacity pressures, and trying to fill up vacant item slots to keep out competitors. For example, Videocon and some other TV and AC manufacturers have introduced models at various price-points right through high-end to low-end. Similarly, IBM, HPCompaq, Acer, and Sony etc. have introduced laptop PCs at various feature-price points ranging from high-end to low-end.
Line filling may sometimes lead to cannibalisation, apart from confusing customers about the products’ positioning unless the company succeeds in clearly differentiating each item meaningfully in customers’ minds.