Marketing Test Quizlet 2.02

Expansion

A business may expand its product mix by adding additional product items or lines. There are a number of reasons why a business may choose an expansion product-mix strategy, including: To satisfy customers' desire for variety. Customers want options. By expanding their product mix, businesses satisfy that desire. To offer customers complementary products. The business may wish to offer customers products that will enhance their other purchases. For example, the Apple Store offers a variety of accessories to go along with its iPhone, including cases, screen covers, and chargers. To spread risk over a wider area. A business's expansion of its product mix can reduce the impact of loss from an item or line that has a drop in sales or fails completely. To appeal to a new market. Some fast-food chains have recently added breakfast menus in an attempt to appeal to a new market—early morning eaters. Read more in the article "Here's Why the Fast-Food Breakfast Wars Are Raging (Links to an external site.)" by Alison Griswold. To increase sales and profits. Expanding the product mix with successful new items or lines should increase sales. Profits should also increase, unless other factors such as reduced sales of other lines or increased expenses prevent that from happening. To enhance the company's reputation. When new products are developed, the company may want to add them to its product mix so that it will keep its reputation of offering a complete line of products to its customers. Or, the company may boost its reputation by acquiring another company whose products already have a desirable position in the market. To make more efficient use of company facilities. When a company can turn out more products using its existing equipment and raw materials, expanding the product line may be a good strategy. Expanding the product mix can have disadvantages as well. Adding product items or product lines increases costs of inventory, marketing, transportation, storage, and personnel. If the new products are more complex or sophisticated, the sales staff may require additional training to sell them.

Importance of product mix

As you know, choosing its product mix is one of the most important decisions that a company must make. If a business's product mix is made up of items that no one wants to buy, the business will surely fail! If a product mix is too wide, a company's resources may be spread too thin to serve all its customers effectively. On the other hand, if the product mix is too narrow, a company may not be providing enough to meet customers' needs. Some specific ways in which product-mix decisions are important to a business include: Appealing to the target market. Each business must determine the target markets for its products. Items in the product mix should be chosen on the basis of their ability to satisfy the needs and wants of those customers. Read more about strategies to appeal to a target audience here. (Links to an external site.) Helping present a consistent company image. The product mix can help create and sustain the company's desired image in the eyes of its customers. A wide and shallow product mix can present a discount image, while a narrow and deep product mix will seem more exclusive. Walmart's wide and shallow mix of drugstore items is part of its national discount image, while Tiffany's narrow and deep product mix of fine jewelry is part of its prestigious image. Affecting profitability. If the product mix is made up of items whose sales provide profits to the company, then the company can buy supplies, pay workers, attract investors, pay expenses, and increase production. An inappropriate product mix can reduce a company's profits. Helping deal with competition. A business can add to its product mix to match the offerings of competitors. It might deepen its assortment in a particular product line to persuade customers that it offers the best selection. Or, it may use the consistency of its product mix in dealing with competition, stressing to customers the convenience of satisfying all their needs in one place. This could apply to a sporting goods store that offers everything a tennis player needs—tennis balls, rackets, shoes, visors, etc.

Contraction

Contraction means removing product items or lines from the product mix. Some of the reasons that a business deletes a product from its mix are: It has lost its appeal to customers. There are few products that satisfy customers indefinitely. Most products follow life cycles in which they are introduced, sell well for a time, and then lose their popularity. For example, think about what happened to MP3 players when music-streaming services on smartphones were introduced. It is no longer appropriate to the company's goals. A business's products should help achieve its objectives. When a product no longer does that, the company may decide to delete it from the product mix. In some cases, the focus of the business changes, requiring changes in the product mix. A business that has focused on industrial products may want to shift to consumer products, meaning that some of its current products must be dropped to make room for new ones. It is no longer profitable. When a product's sales and profits decline, it can become a financial burden to the company, not only in lost revenue but in the additional time required to promote and to sell it. A weak product can also have a negative impact on company image. It conflicts with another product in the mix. In an effort to satisfy a wide range of customers, some companies create or sell many products in the same product line. Eventually, there may be enough overlap between products that the sales of one product take away sales from another product. This is called cannibalization. Recently, Domino's Pizza has risked cannibalization through a strategy it calls "fortressing"—and it seems to be working. Learn more about the company's daring strategy in the article "Domino's Comparable Store Sales Figures Are Even Better Than the Headlines Suggest" (Links to an external site.) by Nicholas Rossolillo. Its production has become a problem. Companies have become much more aware of the need to conserve raw materials and energy in recent years. Some changes in their product mixes have occurred because the necessary raw materials were in short supply or the energy costs were too high. It has become a legal liability. A manufacturer may be liable for damage to the product's user even when the user did not follow the manufacturer's instructions. In some cases, rather than risk a lawsuit or carry expensive insurance, the company will remove the product from its product mix. There are several disadvantages to contracting the product mix. It increases market risk—the fewer products or lines a company has, the greater the financial risk is to the company if one of them fails. Competitors may also step in to provide the products and draw away customers. Eliminating products may have a negative effect on salespeople who are trying to serve customers loyal to the discontinued products. Product deletion can also damage customer goodwill. If a company expects problems with customers, it may give them advance warning that a product is about to be taken off the market. This gives customers time to find another source or a substitute product.

Strategy

Have you ever visited a business because you heard that it now carried something you wanted to buy? Or, have you ever shopped for a favorite product and found that a business no longer carried it? These things happen because businesses are constantly watching and adjusting their product mixes to meet customers' changing needs and wants. The ways in which businesses handle, or manage, their product mixes are known as product-mix strategies. There are a variety of product-mix strategies that businesses can use to meet the needs of their target markets and to satisfy their own objectives. Let's examine each of them and the reasons why a business uses them.

Positioning

Positioning is a product-mix strategy that a business may use to create a certain image or impression of a product in the minds of consumers. These images or impressions can relate to price, quality, audience, and more. For example, a company with lower priced products can position itself as a value-oriented business in the minds of its target customer: cost-conscious buyers. Businesses use positioning for a variety of reasons, including: To reach the right customers. Most businesses don't have products that appeal to every single customer—and that's OK! It's more important to appeal to one specific market segment than every single buyer. By using positioning strategies, companies can connect with the people most likely to need and purchase their products. To differentiate from the competition. The goal of positioning is to showcase your products—and by extension, your business—as superior in some way. By establishing the superiority of their products, businesses can stand out from the competition and accentuate the benefits that their products provide to customers. The disadvantage of positioning is that it can be difficult to change that position once it has been established. For example, a business that has spent years positioning its products as budget-friendly may struggle to introduce higher quality products and reposition itself as an upscale company. Businesses should consider their positioning strategies carefully in order to maximize the success that they will see from their hard work.

The product mix

The particular assortment of products a business offers to meet its market's needs and its company's goals is its product mix. The typical product mix of a large grocery store contains about 40,000 products. Although this may seem quite large, it is small in comparison to the product mixes of certain manufacturers who may make hundreds of thousands of products. Remember that products can come in the form of goods, services, and ideas. Naturally, a typical product mix will vary from industry to industry. You certainly wouldn't expect zoos and hospitals to offer the same products! Product mixes can also vary for businesses within the same industry, depending on each business's target market, size, and finances. To better understand product mix, let's consider its two basic ingredients—product items and product lines. Product item. Each individual good, service, or idea that a business offers for sale is a product item. Product items are distinguished by size, style, brand name, price, color, materials, or any feature that makes one item different from another. Some examples of product items are: A two-liter bottle of Diet Coke A travel-agent certification course A pair of Frye boots A fishing license for the state of Montana A bottle of Softsoap body wash Product line. A product line is a group of related product items. The product items in a product line are somewhat like the members of a family in their relationship to each other; they often resemble each other in some way. For example, Kraft Inc. has several product lines, including dairy, meats, desserts, and more. Each of the products in these product lines is similar in some way to the other products in the line. Another example of a product line would be all of a bank's consumer financial products—home loans, checking accounts, savings accounts, etc. Product class. The product line consists of products with similar characteristics or functions. For example, Colgate-Palmolive Company includes in its oral-care product line toothbrushes, toothpaste, floss, and mouthwash—all products related to dental hygiene. ' Customer group. The product line consists of products that appeal to a certain target market. 3M Corporation has a home and leisure product line that contains items such as carpet cleaners and insect repellent that appeal to individual consumers, as well as product lines that appeal to commercial customers only, including health care, manufacturing, electronics, transportation, etc. And, as the owner of the Post-it brand, 3M also has an office product line that appeals to individual consumers and businesses. Price and/or quality. Items in these product lines are in the same price bracket or of the same quality level. Distribution method. These product lines are set up according to the outlets through which they are marketed. Starbucks, for example, sells coffee, snacks, and other merchandise in its coffee houses, and it also sells ready-to-drink beverages in grocery stores.

Alteration

This product-mix strategy involves 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. There are several reasons why companies choose to alter the products in their product mixes, such as: To limit costs. Altering existing products is less expensive than developing a new product and has a greater chance of success. Developing a new product is not only expensive, but the company runs the risk that the new product will fail. To keep up with changing consumer preferences. Customers' attitudes toward products change over time. Altering the product in some way can renew customers' interest. For example, cosmetic firms frequently design new packaging to give fresh appeal. To compete effectively. Businesses can't simply rest on their laurels—competing against other businesses and products means that they must constantly be innovating, changing, and redesigning products. To reach a different target market. In some cases, companies decide to try to appeal to a different market. They may alter product quality to reduce prices and appeal to a different, lower priced market. Or, they may raise the quality level to charge a higher price and appeal to a more exclusive market. To reach a larger market. Products may be altered in such a way that they are more useful and thus appeal to a wider segment of the population. The products may be made more convenient to use, more effective, safer, or more versatile. For example, early food processors did not always do an effective job, were often difficult to clean, and were limited in their uses. These products have been improved to such a degree that the market for them is now much larger. To improve products for social good. Product ingredients can be altered to make them better and safer for consumers. Many restaurants and companies, for instance, have removed trans fats from all their food products. There are some disadvantages to alteration as a product-mix strategy. If a company chooses to alter an entire line at one time, it can be quite expensive. But, if the company decides to alter the line in stages, competitors have a chance to observe the changes and alter their own products accordingly. There are also limits to the extent to which alteration can be used. Not all products can be altered, or there may be a limit to the ways in which they can be changed. It is also impossible to predict the success of the altered product. If consumers have been satisfied with the product as it is, they may not continue to buy it if the changes do not appeal to them. If too many new ingredients or components are added to the product, its price may have to be raised higher than the market will bear. Most companies, however, prefer to try alteration before deciding to delete a product or line from the mix.

Trading Up

When a company decides to add a higher priced product or line to its mix, it is using a trading-up strategy. This is also sometimes called stretching up or brand leveraging. Some of the reasons why companies use trading up are: To enhance company image. To increase sales of the company's other products. The prestige of the higher priced products or lines often "rubs off" on the lower priced products or lines. Sales may increase because the lower priced items seem to have grown in value by association or because new customers have been drawn to the business by the addition of the higher priced line. To attract a new target market. By using a trading-up strategy, the company is adding products or lines that are more expensive than what it previously offered. These new products should attract a new category of customers who will enlarge the company's market share. There are a number of disadvantages to the use of trading up. While sales may be generated for the new product or line, sales of established products may decline. If the business uses trading up to enhance its image, 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, or they may refuse to believe that better quality merchandise can be purchased from a business that had formerly sold budget goods.

Trading Down

When a company decides to add a lower priced product or line to its mix, it is using a trading-down strategy. This is also sometimes called stretching down. For example, many publishers add a paperback edition of books they have produced in hard cover. Some reasons for trading down include: To attract a new target market. By using trading down, the company is adding products or lines that are less expensive than what it previously offered. These items should attract customers who could not afford to buy the more expensive versions. To meet the competition. Some companies find the market is better at the lower end, or they add a lower priced product because the competition is about to provide it. They may also have been attacked by the competition at the high end and attempt to counter-attack by shifting to the low end. The disadvantages of using a trading-down strategy are numerous. It's possible that the firm's reputation for high quality may be damaged by the addition of a lower quality item to its product mix, or consumers may be confused about the new product or line. Also, profits from the cheaper product may be eroded by reduced sales in the more expensive line, and dealers may not be willing to add the lower priced product to their offering. Finally, the competition may become stronger at the high end of the market when businesses use a trading-down strategy.

Product-mix dimensions

Width This term, also called breadth, refers to the number of product lines a company carries. It is usually referred to as being narrow or broad. The business with a narrow product mix offers a limited number of product lines. Having a narrow product mix allows a company to specialize effectively, to produce efficiently, and to concentrate its marketing efforts on its few product lines. For example, Ben and Jerry's famous ice cream shop sells only a few variations of ice cream, (Links to an external site.) like non-dairy pints and frozen yogurt. The business with a broad product mix offers many product lines. Discount stores are good examples of businesses with broad product lines since they carry everything from shampoo to tires to books. This provides them with many opportunities to make sales, to appeal to customers with a variety of needs, and to promote one-stop shopping. In addition, it often reduces the costs of the goods they buy for resale. Check out Five Below's website (Links to an external site.) to see all of the product lines it offers. Length Length refers to the total number of products in the product mix. For example, if a hygiene company offers 10 items in its haircare line, 10 items in its oral care line, and 10 items in its soap line, it has a product length of 30. If a business has many products, it has a long product mix. A long product mix gives customers many products to choose from. On the other hand, though, if a business doesn't have many items in its product lines, it has a short product mix. A short product mix might help a business keep costs down and avoid competing with its own products. Depth This term refers to the assortment of sizes, colors, flavors, and models offered in a company's product lines. In other words, depth refers to the variation of items. This dimension is usually considered to be deep or shallow. The business with a deep product mix offers significant variation of its products. For example, an ice cream manufacturer might offer many flavors of ice cream available in both pints and half gallons. This allows the business to meet the needs of a variety of consumers, to use a range of prices, and to compete effectively. Think of Ben & Jerry's again—their many flavors are available in pints, pint slices, mini cups, and more! The business with a shallow product mix offers few variations within the product line. Limiting its product offerings helps a business control costs and ensure a profit. Consistency Consistency refers to how closely a company's product lines are related in terms of:End useMethods of distribution and productionTarget market(s)Price range If they are closely related on any one of these factors, the product mix is said to be consistent. On the other hand, if the lines are not closely related, the product mix is considered inconsistent.