Product/Service Management LAP 3 Nature of the Product Mix

Objectives Explain the nature of the product mix. Describe types of product-mix strategies.

Explain the nature of the product mix. Objective

Would you write a long research paper with no:Would you write a long research paper with no:  Ideas?  Plan?  Outline? Certainly not!Certainly not! Same principle is true for businesses.Same principle is true for businesses. Product mix requires:Product mix requires:  Time  Research  Planning

Product Mix Product mix—the particular assortment of products a business offers to meet:Product mix—the particular assortment of products a business offers to meet:  Market needs  Company goals Every business must choose a product mix.Every business must choose a product mix. Varies from:Varies from:  Industry to industry  Business to business

Product Mix Product mix consists of:Product mix consists of:  Product items:  Each individual good, service, or idea that a business offers for sale  Distinguished by size, style, brand name, price, color, materials, or any feature that makes one item different from another  Examples: A Louis Vuitton handbag A Louis Vuitton handbag A fishing license for the state of Montana A fishing license for the state of Montana A bottle of Softsoap body wash A bottle of Softsoap body wash

Product Mix Product mix consists of:Product mix consists of:  Product lines:  A group of related product items  May be classified according to: Product class (similar characteristics/functions) Product class (similar characteristics/functions) Customer group (same target market) Customer group (same target market) Price and/or quality Price and/or quality Distribution method Distribution method

Product-Mix Dimensions WidthWidth  Also called breadth  The number of product lines a company carries  Narrow product mix:  Offers a limited number of product lines  Allows a company to: Specialize effectively Specialize effectively Produce efficiently Produce efficiently Concentrate its marketing efforts on its few product lines Concentrate its marketing efforts on its few product lines

Product-Mix Dimensions WidthWidth  Broad product mix:  Offers many product lines  Provides many opportunities to: Make sales Make sales Appeal to customers with a variety of needs Appeal to customers with a variety of needs Promote one-stop shopping Promote one-stop shopping

Product-Mix Dimensions DepthDepth  Also called length  The number of products and the assortment of sizes, colors, and models offered in a company’s product lines

Product-Mix Dimensions DepthDepth  Deep product mix:  Offers a great many items within the product line  Allows the business to: Meet the needs of a variety of consumers Meet the needs of a variety of consumers Use a range of prices Use a range of prices Compete effectively Compete effectively

Product-Mix Dimensions DepthDepth  Shallow product mix (also called a short product mix):  Offers few items within the product line  Helps control costs and ensure a profit

Product-Mix Dimensions ConsistencyConsistency  How closely a company’s product lines are related in terms of:  End use  Methods of distribution and production  Target market(s)  Price range  Consistent or inconsistent

Importance of Product-Mix Decisions One of the most important decisions a company makesOne of the most important decisions a company makes Helps to:Helps to:  Appeal to target market  Present consistent company image  Achieve and maintain profitability  Deal with competition

Describe types of product-mix strategies. Objective

Product-Mix Strategies ExpansionExpansion  Adding additional product items or lines  Reasons to use:  To satisfy customers’ desire for variety  To offer customers complementary products  To spread risk over a wider area  To appeal to a new market  To increase sales and profits  To enhance the company’s reputation  To make more efficient use of company facilities

Product-Mix Strategies ExpansionExpansion  Disadvantages:  Increases costs of inventory, marketing, transportation, storage, and personnel  If new products are more complex or sophisticated, the sales staff may require additional training to sell them.

Product-Mix Strategies ContractionContraction  Removing product items or lines from the product mix  Used when product:  Has lost its appeal to customers  Is no longer appropriate to the company’s goals  Is no longer profitable  Conflicts with another product in the mix  Has production problems  Has become a legal liability

Product-Mix Strategies ContractionContraction  Disadvantages:  Increases market risk—the fewer products or lines a company has, the greater the financial risk to the company if one of them fails.  Competitors may step in to provide the products and draw away customers.  May have a negative effect on salespeople who are trying to serve customers loyal to the discontinued products  Can damage customer goodwill

Product-Mix Strategies AlterationAlteration  Making changes in the company’s products or lines  Products may be completely redesigned or changes may be made in their basic styles, characteristics, packaging, or pricing.

Product-Mix Strategies AlterationAlteration  Reasons to use:  To limit costs  To keep up with changing consumer preferences  To compete effectively  To reach a different target market  To reach a larger market  To improve products for social good

Product-Mix Strategies AlterationAlteration  Disadvantages:  Altering one line at a time can be quite expensive.  Altering in stages gives competitors the chance to observe the changes and alter their own products accordingly.  There are limits to the extent to which alteration can be used.  Not all products can be altered.  It is impossible to predict the success of the altered product.

Product-Mix Strategies Trading UpTrading Up  A company decides to add a higher priced product or line to its mix.  Also sometimes called stretching up or brand leveraging  Reasons to use:  To enhance company image  To increase sales of the company’s other products  To attract a new target market

Product-Mix Strategies Trading UpTrading Up  Disadvantages:  While sales may be generated for the new product or line, sales of established products may decline.  The business must be careful that present customers are not lost in the process of gaining new ones.  Customers may become confused as to what the company’s image is meant to be.

Product-Mix Strategies Trading DownTrading Down  A company decides to add a lower priced product or line to its mix.  Also sometimes called stretching down  Reasons to use:  To attract a new target market  To meet the competition

Product-Mix Strategies Trading DownTrading Down Cadillac Cimarron  Disadvantages:  The firm’s reputation for high quality may be damaged by the addition of a lower quality item to its product mix.  Consumers may be confused about the new product or line.  Profits from the cheaper product may be eroded by reduced sales in the more expensive line.  Dealers may not be willing to add the lower priced product to their offering.  The competition may become stronger at the high end of the 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?

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