For example, Table 1 illustrates the hypothetical product mix of a college. The depth of each line is shown by the number of different product items — courses offered — within each product line. The college has decided to offer a diverse marketing mix. Because the college has a number of departments, it can appeal to a large cross-section of potential students. This college has decided to offer a wide product line academic departments , but the depth of each department course offerings is only average.
When we add a new product to a line, it is referred to as a line extension. When we add a line extension that is of better quality than the other products in the line, this is referred to as trading up or brand leveraging. When we add a line extension that is of lower quality than the other products of the line, this is referred to as trading down.
When we trade down, there are chances that it can lead to a reduction in the brand equity. Image anchors are usually from the higher end of the line's range. So when a car company promotes its model it shows the top most model in the range with a rider that all accessories are not a part of standard equipment. This helps to sell the lower end models of the same car. When we add a new product within the current range of an incomplete line, this is referred to as line filling.
Price lining is the use of a limited number of prices for all your product offerings. Its underlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospective customers. It has the advantage of ease of administering, but the disadvantage of inflexibility, particularly in times of inflation or unstable prices. Product-mix management and responsibilities It is extremely important for any organization to have a well-managed product mix.
Product-mix decisions are concerned with the combination of product lines offered by the company. Some basic product-mix decisions include: i. Reviewing the mix of existing product lines; ii.
Adding new lines to and deleting existing lines from the product mix; iii. Determining the relative emphasis on new versus existing product lines in the mix; iv.
Determining the appropriate emphasis on internal development versus external acquisition in the product mix; v. Gauging the effects of adding or deleting a product line in relationship to other lines in the product mix; and vi. Forecasting the effects of future external change on the company's product mix. Product Line Product Line is defined as a group of products that are closely related to each other.
They function in the same manner and are sold to the same customer groups. These products are marketed from the same types of outlets and fall within a specified price range. The product line has i. Line depth refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line.
Ideally a company would like to get an even amount of sales from each product but many times one or two products do much better and so contribute a much higher percentage of sales. The company must evaluate if the other products not contributing much in terms of sales are contributing in margins. If not they must question the rationale for keeping such products in their product line. This change is what leads to the introduction and withdrawal of products from the market. Withdrawing Products Product withdrawal is as much a planned activity as introduction of a new product.
Companies in-build the time of withdrawal of a product in their business strategy and link it with the introduction of a new product.
Though companies would like the decision to withdraw a product to be a planned one sometimes competitive pressures either force companies to withdraw existing products or their sale decreases so much that there is no sense in continuing with the product in the market. The demise of the product can also be attributed to changes in the environment — attitudes and needs of the customer — which have been accelerated by market forces like competition, arrival of new technology, etc.
Decisions on when to withdraw the product depend on several factors: i. Strategic objectives — new prod ready, competitive product launched iii. Product withdrawal even in a planned manner has its own risks because an existing product already has an acceptance in the market and is established.
It is giving the company some sales and profits. By this time it is likely that the product development costs have been recovered and the amount of money needed for supporting the product is not so much as the customers are already aware of the product.
In addition the company has become adept in manufacturing and selling the product. Once it is withdrawn the company will need to introduce another product in its place. How this new product will fare in the market is not known thus there is a risk in its introduction.
For this new product the company will need to spend large sums to promote it and generate enough sales to recover the costs of development. The manpower and the sales channel will need to be retrained in order to understand the product and its benefits thus involving cost. How the customer will take to this new product is not known for certain until the market performance actually shows it. If the company plans to withdraw a product in a planned manned it must evaluate the following: i.
Has the product met its business objectives in terms of sales and profits? Can the product continue to do so in the face of competition and changing market environment?
Can the product support the marketing expenditure being done in order to promote it. Does the presence of the product help in selling other products of the company even if it is not making any money Loss leader chapter 7 v. Does the company have a product that can fill the space vacated by this product? Is it economical for the company to do so? Is the business strategy dictating the withdrawal of the product? Increasing Products New product introduction is the logical extension of a product withdrawal.
A company with finite resources can support only a limited number of products in the market. Thus as newer products are introduced older products must be withdrawn to make place for them. New products can be introduced in a product line in several ways: i. This may cover the range of price from the low to medium to high price. However in this range the ultra high and very low segment are not covered.
They do this because: a. They try to respond to attacks to in their current upper price segment by launching a lower end product. They try and fill an empty price point before competitors can do so. To increase the number of products for expanding their market share. To counter the attack from lower priced copies being made by other manufacturers.
The problems associated with a downwards stretch are: a. The competition may counteract by entering the upper price segment in which the company is. The low end price products may eat into the sales of products from the upper segment thus lowering the sales of this segment. Stretching Upwards: If the company adds a product above the Honda Accord then it would mean stretching upwards the product line. Later they enter the upper price segments.
The reasons for entering this are: a. They are attracted to the higher margins in the upper price segments. They want to create an image of classiness for their company by this upper price product. They want to complete the range of products offered by the company so as to tap all segments in the market. The limitations of this strategy are that: a. The competition may respond by entering the middle price category. Other companies may also be entering the upper price segment.
Two-Way Stretch: Sometimes companies that introduce products in the middle price ranges decide to stretch their products simultaneously in the lower and upper ranges.
This is a two way stretch. To target different markets at the same time. To keep competition away from the segments in which the company is. To test how each market is at the same time. Hence there is a loss of sales to the existing product. The sale of higher category products shifts to the lower priced products.
Along with the regular Marriott Hotel it added the Marriott Marquise line to serve the upper end of the market, the Courtyard, Residence Inn and Fairfield to serve the low-end of market. Here the possible after effects are that price conscious customers may soon discover the reasonably-priced rooms of the lower chain and tend to move there.
Filling the product line: Unlike the Line stretching where the new product is introduced at another price range category in product line filling new products are added to the existing product line within the existing product range So if Honda has Honda City a base model and to this it adds an LX model having more features than the base model whith a slightly higher price and a DX model having more features than the LX model with a price higher than the LX model yet the price range remaining within the category pricing.
This price of the DX model will be much lower than the price of the base model of the next higher category the Honda Civic. This would lead to a product line filling. Product line filling is done by companies to: a. Try to get higher profits from a particular product category. The base model is priced so as to attract the customer and cover the basic production and overhead costs of the company.
Hence the cost of adding a few features to the LX and DX models is not much. Hence the company is in a position to charge much higher than its cost and thus enhance its profits for that product category. Since developing a completely new product is much more expensive as compared to modifying an existing product and creating its variant.
It also helps the company to give the customer an impression that its range of products is complete and comprehensive. This is good for the overall image of the company. It also helps in keeping out competitors from different segments. It is not that competition can now not enter such segments but it makes it that much harder and expensive for a new entrant to enter the market.
Product line modernisation Product Line Modernisation involves a complete overhaul of the product lines. Here the company undertakes the complete overhaul of the product line and not by either product stretching or by product filling. This type of overhaul is not usual and is seldom undertaken. It may be done if the company passes through an economic crisis or bankruptcy. Product Contribution Every product in a Product Line makes a contribution to its sale and profit.
Some make a greater contribution to the sales and some to the profit. For a company to modify, add or delete a product in the product line they must analyse how the product is performing in terms of sales and profit. Is it contributing a sufficient amount to be retained or is it fulfilling some business objective for it to be retained or dropped. This analysis is done by evaluating the contribution margin of a product — higher the contribution margin is the lower variable costs are as a percentage of total costs , faster the profits increase with sales.
The Contribution margin analysis allows an analysis of how growth in sales will translate into growth in profits. This is also called an operating leverage and measures how risky volatile a company's operating income is to changes in market conditions. Contribution margin is calculated as the product's price minus its total variable costs.
This allows a manager to evaluate what will be the breakeven point in terms of sales for a particular product. It also helps the manager plan his selling schemes better by knowing to what extent he will be able to reward his channel partners and sales team by way of commissions and incentives.
This figure can then be used to determine whether variable costs for that product can be reduced, or if the price of the end product could be increased. If these options are not possible, the manager may decide to drop the unprofitable product in order to introduce an alternate product with a higher contribution margin.
This analysis may be done on an individual basis and also on a cumulative basis to understand its past and present behaviour. It can then be used to predict the possible future of the product.
Summary The product forms an important part of the marketing mix. A company needs to have several products in order to serve the complete range of customers. The set of products that the company has in its armoury is called the product mix. This product mix may consist of various product lines or individual products. The more numbers of lines and products a company has the wider is said to be its product mix.
A product line is a set of products that are linked to each other since they tend to address similar customers. A product line may have depth that means a number of products at various price points.
Several product decisions need to be taken in terms of withdrawal or introduction of a product. Important considerations must be kept in mind whether withdrawing or introducing products. Products can be increased above below or at the same level of existing products. Another important consideration for taking product decisions is the contribution margin which helps in deciding whether the product will meet the sales and profitability objectives of the company. Your learning 1. What is a product mix?
Why is it needed by an organisation? Why do we need to take considered decisions while withdrawing products? Stretching a product line downwards has some limitations in managing the image of the brand.
Why is it so and what should you do to avoid this? How do we link business objectives to product decisions? Catastrophic failure — A catastrophic failure is a sudden and total failure of some system from which recovery is impossible 2.
Revolve around — to be the focus of something of to be centered on something - Her entire attention centered on her children; Our day revolved around our work 3. Diverse marketing mix — A wide range in the marketing mix 4. Large cross-section — A cross section is a sample meant to be representative of a whole population something that shows the variety of the population.
So a Large cross section represents a wide range. In build — Something that is inbuilt or inherent in the product. Some property or quality that is built into the product at the time of designing it. Price spectrum — The range of prices for a product line from the lowest priced product in the line to the highest priced product give the price spectrum of the product line. Eat into sales — Means that a new product will take away the sales that was happening for an existing product when another one is introduced above or below it by customers who wanted a cheaper of more expensive product.
How does filling a product line help the company retain customers? Why do companies think of line extensions or product withdrawals and not go in for Product line modernisation? If the company withdraws a product is it necessary for it to have another product to fill its place? If yes why and if no why not?
Why must a company analyse the line vulnerability? What would happen if they were not to undertake such an analysis? Types of Customers at different stages 4. Strategy at different stages of the PLC 5. Application of the PLC 6. Limitations of the PLC 7.
Summary 8. Your learning 9. Introduction Product Life Cycle — as the name suggests every product has a life cycle. This life cycle commences from the time the product is launched in the market till the time it is ultimately withdrawn from it.
During this period it passes through several phases each of which is important and needs different strategies if the product has to remain in the market and grow into the next phase. This is very similar to a human being who also passes through several phases from birth to death and the strategies or activities needed for each phase of life are different from each other and need a successful management of each phase. However for an individual each phase may not be of the same duration or intensity as the standard one.
An individual may have a very short youth because of certain conditions in his life or family, or a person may die a premature death due to illness or accident. Similarly a for products we can make a standardised life cycle based on the industry in which it is but an individual product may not follow the standard life cycle pattern an may live much longer or may perish much earlier.
Introduction In this phase the product is introduced in the market. Once the product has been developed the Product Manager has to decide when he wants to introduce the product to the market. When Nirma initially launched its washing powder in the Rural Markets Hindustan Lever never paid attention to it because it did not think that the Rural market had that much potential and underestimated the rural populations desire for a quality product.
They continued to concentrate on urban markets. This allowed Nirma to consolidate its position by way of improved product, manufacturing facilities and distribution system.
By the time Hindustan Lever responded to the threat by launching a lower priced washing powder it was too late to dislodge a well entrenched Nirma. In fact now Nirma was able to enter the urban markets also since it was an established product and financially it was much stronger to resist Hindustan Lever in the market.
Growth In this stage the product is advertised vigorously by the company and grows rapidly in sales with more and more customers coming to know about it and beginning to try it. This is an important stage where the product is either accepted or rejected by the customer. An acceptance will continue to see a growth in its sales otherwise the product will continue to try and sell but will soon fail and be withdrawn from the market. Usually the customers in this phase are the early adopters or those who like to experiment and are comfortable with innovation.
They are also those people who are fashion conscious and trend leaders. In this phase the company who is an innovator or a market leader should expect to recover its costs of development by keeping margins high.
However a word of caution here is that sometimes companies have spent so much on development that they do not have sufficient resources to sustain the investment needed to push the growth over its critical mass and fail because the product revenues needed for sustenance take time to build. For those companies who have only copied the market leaders product there is virtually no development cost and they can use all their resources to promote their product.
In addition since they do not have to recover any development costs they have much less at stake in a higher pricing of the product. Thus their product can be much cheaper. Thus the Growth phase is a critical phase and companies must ensure that before they introduce a product they have enough resources to see the products launch to success. Maturity The introduction of the product sees a period of rapid growth when the sales increase. But as time passes more and more competitors enter the market with similar products.
The sale is then divided amongst many products and the rate of growth of sales begins to slow down. During this phase those customers from the total target segment who are the early majority begin to use the product. Though the rate of growth of sales begins to slow down the total market share of the product continues to rise. In this phase the company needs to put in a lot of effort in order to maintain growth in sales. Several strategies may need to be adopted.
While writing Product Management For Dummies , we tapped into our combined 60 years of hands-on product management experience. We also took advantage of the methodology and learning we've discovered working with tens of thousands of Indians than chiefs, so even after you've paid your dues, your ascension to management is far from guaranteed.
Operations Management — find out how to represent processes in a diagram and get the lowdown on the operations management vocabulary used to measure those processes It's a risky business — discover the risks that may threaten your This updated edition shows you how to use the agile project management framework for success! Product management plays a pivotal role in organizations. In fact, it's now considered the fourth most important title in corporate America—yet only a tiny fraction of product managers have been trained for this vital position.
If you're one of the hundreds of thousands of people who hold this essential job—or simply aspire to break into a new role— Product Management For Dummies gives you the tools to increase your skill level and manage products like a pro.
If you are an introvert, you are asked to be vocal about the needs of your product. If you are an extrovert, you need to spend a lot of time listening quietly. In fact, it's now considered the fourth most important title in corporate America—yet only a tiny fraction of product managers have been trained for this vital position.
Download for offline reading, highlight, bookmark or take notes while you read Product Management For Dummies. Skip to content Download free ebooks at bookboon. This updated edition shows you how to use the agile project management framework for success!
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