Product/Service Management LAP 3 Nature of the Product Mix

Product/Service Product/Service ManagementManagement

LAP 3LAP 3

Nature of the Product MixNature of the Product Mix

ObjectivesObjectives

Explain the nature of the product mix.Explain the nature of the product mix.

Describe types of product-mix strategies.Describe types of product-mix strategies.

Explain the nature of the product mix.Explain the nature of the product mix.

ObjectiveObjective

• Would you write a long Would you write a long research paper with no:research paper with no: Ideas?Ideas? Plan?Plan? Outline?Outline?

• Certainly not!Certainly not!

• Same principle is true for Same principle is true for businesses.businesses.

• Product mix requires:Product mix requires: TimeTime ResearchResearch PlanningPlanning

Product MixProduct Mix

• Product mix—the particular Product mix—the particular assortment of products a assortment of products a business offers to meet:business offers to meet: Market needsMarket needs Company goalsCompany goals

• Every business must choose Every business must choose a product mix.a product mix.

• Varies from:Varies from: Industry to industryIndustry to industry Business to businessBusiness to business

Product MixProduct Mix• Product mix consists of:Product mix consists of:

Product items:Product items: Each individual good, service, or idea Each individual good, service, or idea

that a business offers for salethat a business offers for sale Distinguished by size, style, brand Distinguished by size, style, brand

name, price, color, materials, or any name, price, color, materials, or any feature that makes one item different feature that makes one item different from anotherfrom another

Examples:Examples: A Louis Vuitton handbagA Louis Vuitton handbag A fishing license for the state of A fishing license for the state of

MontanaMontana A bottle of Softsoap body washA bottle of Softsoap body wash

Product MixProduct Mix• Product mix consists of:Product mix consists of:

Product lines:Product lines: A group of related product itemsA group of related product items May be classified according to:May be classified according to:

Product class (similar Product class (similar characteristics/functions)characteristics/functions)

Customer group (same target market)Customer group (same target market) Price and/or qualityPrice and/or quality Distribution methodDistribution method

Product-Mix DimensionsProduct-Mix Dimensions

• WidthWidth Also called breadthAlso called breadth The number of product lines a The number of product lines a

company carriescompany carries Narrow product mix:Narrow product mix:

Offers a limited number of Offers a limited number of product linesproduct lines

Allows a company to:Allows a company to: Specialize effectivelySpecialize effectively Produce efficientlyProduce efficiently Concentrate its marketing Concentrate its marketing

efforts on its few product linesefforts on its few product lines


• WidthWidth Broad product mix:Broad product mix:

Offers many product linesOffers many product lines Provides many opportunities to:Provides many opportunities to:

Make salesMake sales Appeal to customers with a Appeal to customers with a

variety of needsvariety of needs Promote one-stop shoppingPromote one-stop shopping


• DepthDepth Also called lengthAlso called length The number of products and the The number of products and the

assortment of sizes, colors, and assortment of sizes, colors, and models offered in a company’s models offered in a company’s product linesproduct lines


• DepthDepth Deep product mix:Deep product mix:

Offers a great many items within Offers a great many items within the product linethe product line

Allows the business to:Allows the business to: Meet the needs of a variety of Meet the needs of a variety of

consumersconsumers Use a range of pricesUse a range of prices Compete effectivelyCompete effectively


• DepthDepth Shallow product mix (also called Shallow product mix (also called

a short product mix):a short product mix): Offers few items within the Offers few items within the

product lineproduct line Helps control costs and ensure a Helps control costs and ensure a

profitprofit


• ConsistencyConsistency How closely a company’s How closely a company’s

product lines are related product lines are related in terms of:in terms of: End useEnd use Methods of distribution Methods of distribution

and productionand production Target market(s)Target market(s) Price rangePrice range

Consistent or inconsistentConsistent or inconsistent

Importance of Product-Mix DecisionsImportance of Product-Mix Decisions

• One of the most important One of the most important decisions a company makesdecisions a company makes

• Helps to:Helps to: Appeal to target marketAppeal to target market Present consistent Present consistent

company imagecompany image Achieve and maintain Achieve and maintain

profitabilityprofitability Deal with competitionDeal with competition

Describe types of product-mix Describe types of product-mix strategies.strategies.

ObjectiveObjective

Product-Mix StrategiesProduct-Mix Strategies• ExpansionExpansion

Adding additional product Adding additional product items or linesitems or lines

Reasons to use:Reasons to use: To satisfy customers’ To satisfy customers’

desire for varietydesire for variety To offer customers To offer customers

complementary productscomplementary products To spread risk over a wider To spread risk over a wider

areaarea

To appeal to a new marketTo appeal to a new market To increase sales and To increase sales and

profitsprofits To enhance the company’s To enhance the company’s

reputationreputation To make more efficient use To make more efficient use

of company facilitiesof company facilities

Product-Mix StrategiesProduct-Mix Strategies• ExpansionExpansion

Disadvantages:Disadvantages: Increases costs of inventory, Increases costs of inventory,

marketing, transportation, marketing, transportation, storage, and personnelstorage, and personnel

If new products are more If new products are more complex or sophisticated, complex or sophisticated, the sales staff may require the sales staff may require additional training to sell additional training to sell them.them.

Product-Mix StrategiesProduct-Mix Strategies• ContractionContraction

Removing product items or lines Removing product items or lines from the product mixfrom the product mix

Used when product: Used when product: Has lost its appeal to customersHas lost its appeal to customers Is no longer appropriate to the Is no longer appropriate to the

company’s goalscompany’s goals Is no longer profitableIs no longer profitable Conflicts with another product in Conflicts with another product in

the mixthe mix Has production problemsHas production problems Has become a legal liabilityHas become a legal liability

Product-Mix StrategiesProduct-Mix Strategies• ContractionContraction

Disadvantages:Disadvantages: Increases market risk—the fewer Increases market risk—the fewer

products or lines a company has, products or lines a company has, the greater the financial risk to the the greater the financial risk to the company if one of them fails.company if one of them fails.

Competitors may step in to provide Competitors may step in to provide the products and draw away the products and draw away customers. customers.

May have a negative effect on May have a negative effect on salespeople who are trying to serve salespeople who are trying to serve customers loyal to the customers loyal to the discontinued productsdiscontinued products

Can damage customer goodwillCan damage customer goodwill

Product-Mix StrategiesProduct-Mix Strategies• AlterationAlteration

Making changes in the company’s Making changes in the company’s products or linesproducts or lines

Products may be completely Products may be completely redesigned or changes may be redesigned or changes may be made in their basic styles, made in their basic styles, characteristics, packaging, or characteristics, packaging, or pricing.pricing.


Reasons to use:Reasons to use: To limit costsTo limit costs To keep up with changing To keep up with changing

consumer preferencesconsumer preferences To compete effectively To compete effectively To reach a different target marketTo reach a different target market To reach a larger marketTo reach a larger market To improve products for social To improve products for social

goodgood


Disadvantages:Disadvantages: Altering one line at a time can be Altering one line at a time can be

quite expensive. quite expensive. Altering in stages gives competitors Altering in stages gives competitors

the chance to observe the changes the chance to observe the changes and alter their own products and alter their own products accordingly. accordingly.

There are limits to the extent to There are limits to the extent to which alteration can be used. which alteration can be used.

Not all products can be altered.Not all products can be altered. It is impossible to predict the It is impossible to predict the

success of the altered product.success of the altered product.

Product-Mix StrategiesProduct-Mix Strategies• Trading UpTrading Up

A company decides to add a A company decides to add a higher priced product or line to higher priced product or line to its mix.its mix.

Also sometimes called stretching Also sometimes called stretching up or brand leveragingup or brand leveraging

Reasons to use:Reasons to use: To enhance company imageTo enhance company image To increase sales of the To increase sales of the

company’s other productscompany’s other products To attract a new target marketTo attract a new target market

Product-Mix StrategiesProduct-Mix Strategies• Trading UpTrading Up

Disadvantages:Disadvantages: While sales may be generated for While sales may be generated for

the new product or line, sales of the new product or line, sales of established products may decline. established products may decline.

The business must be careful that The business must be careful that present customers are not lost in present customers are not lost in the process of gaining new ones. the process of gaining new ones.

Customers may become confused Customers may become confused as to what the company’s image is as to what the company’s image is meant to be.meant to be.

Product-Mix StrategiesProduct-Mix Strategies

• Trading DownTrading Down A company decides to add a lower A company decides to add a lower

priced product or line to its mix.priced product or line to its mix. Also sometimes called stretching Also sometimes called stretching

downdown Reasons to use:Reasons to use:

To attract a new target marketTo attract a new target market To meet the competitionTo meet the competition

Product-Mix StrategiesProduct-Mix Strategies

• Trading DownTrading Down

Cadillac CimarronCadillac Cimarron

Disadvantages:Disadvantages: The firm’s reputation for high quality The firm’s reputation for high quality

may be damaged by the addition of a may be damaged by the addition of a lower quality item to its product mix.lower quality item to its product mix.

Consumers may be confused about Consumers may be confused about the new product or line.the new product or line.

Profits from the cheaper product may Profits from the cheaper product may be eroded by reduced sales in the be eroded by reduced sales in the more expensive line.more expensive line.

Dealers may not be willing to add the Dealers may not be willing to add the lower priced product to their offering.lower priced product to their offering.

The competition may become The competition may become stronger at the high end of the stronger at the high end of the market.market.

• What product-mix strategy is your place of employment currently using?

• For what reasons has this particular strategy been chosen?

• Is it working?

• What disadvantages is the business experiencing by using this strategy?

• A budget airline needs to drop several of its destinations as part of a contraction product-mix strategy.

• So as not to alarm customers or investors, the company doesn’t make the announcement about the dropped destinations until the day before the flights stop.

• This leaves many customers stranded, frazzled, and angry.

• What do you think about the airline’s actions?

Did it have a responsibility to let customers know about the product-mix contraction?

Or, was it OK to keep it a secret to protect the company and its objectives?

MarkED

Acknowledgments

Original DevelopersChristopher C. Burke,

Sarah Bartlett Borich, MarkED

Version 1.0

Copyright © 2009MarkED Resource Center

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Product/Service Management LAP 3 Nature of the Product Mix