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Product Mix

PRODUCT MIX

The product mix of a company, which is generally defined as the total composite of products offered by a particular organization, consists of both product lines and individual products. A product line is a group of products within the product mix that are closely related, either because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. A product is a distinct unit within the product line that is distinguishable by size, price, appearance, or some other attribute. For example, all the courses a university offers constitute its product mix; courses in the marketing department constitute a product line; and the basic marketing course is a product item. Product decisions at these three levels are generally of two types: those that involve width (variety) and depth (assortment) of the product line and those that involve changes in the product mix occur over time.

The depth (assortment) of the product mix refers to the number of product items offered within each line; the width (variety) refers to the number of product lines a company carries. For example, Table 1 illustrates the hypothetical product mix of a major state university.

The product lines are defined in terms of academic departments. The depth of each line is shown by the number of different product itemscourse offeringsoffered within each product line. (The examples represent only a partial listing of what a real university would offer.) The state university has made the strategic decision to offer a diverse market mix. Because the university has numerous academic departments, it can appeal to a large cross-section of potential students. This university has decided to offer a wide product line (academic departments), but the depth of each department (course offerings) is only average.

In order to see the difference in product mix, product line, and products, consider a smaller college that focuses on the sciences represented in Table 2. This college has decided to concentrate its resources in a few departments (again, this is only a partial listing); that is, it has chosen a concentrated market strategy (focus on limited markets). This college offers narrow product line (academic departments) with a large product depth (extensive course offerings within each department). This product mix would most likely appeal to a much narrower group of potential studentsthose students who are interested in pursuing intensive studies in math and science.

PRODUCT-MIX MANAGEMENT AND RESPONSIBILITIES

It is extremely important for any organization to have a well-managed product mix. Most organizations break down managing the product mix, product line, and actual product into three different levels.

Hypothetical state university product mix
wide width, average depth
Political Science Education Mathematics Nursing Engineering English
Political Theory Elementary Teaching Calculus I Biology Physics English Literature
American Government Secondary Teaching Calculus II Chemistry Advanced Math European Writers
International Relations Teaching Internship Trigonometry Organic Chemistry Electrical Concepts Hemingway Seminar
State Government Post Secondary Teaching Math Theory Statistics Logic Design Creative Writing

Hypothetical small college product mix
narrow width, large depth
Mathematics Physics
Geometric Concepts Intermediate Physics
Analytic Geometry and Calculus Advanced Physics
Calculus II Topics on Physics and Astronomy
Calculus III Thermodynamics
Numerical Analysis Condensed Matter Physics II
Differential Equations Electromagnetic Theory
Matrix Theory Quantum Mechanics II

Product-mix decisions are concerned with the combination of product lines offered by the company. Management of the companies' product mix is the responsibility of top management. Some basic product-mix decisions include: (1) reviewing the mix of existing product lines; (2) adding new lines to and deleting existing lines from the product mix; (3) determining the relative emphasis on new versus existing product lines in the mix; (4) determining the appropriate emphasis on internal development versus external acquisition in the product mix; (5) gauging the effects of adding or deleting a product line in relationship to other lines in the product mix; and (6) forecasting the effects of future external change on the company's product mix.

Product-line decisions are concerned with the combination of individual products offered within a given line. The product-line manager supervises several product managers who are responsible for individual products in the line. Decisions about a product line are usually incorporated into a marketing plan at the divisional level. Such a plan specifies changes in the product lines and allocations to products in each line. Generally, product-line managers have the following responsibilities: (1) considering expansion of a given product line; (2) considering candidates for deletion from the product line; (3) evaluating the effects of product additions and deletions on the profitability of other items in the line; and (4) allocating resources to individual products in the line on the basis of marketing strategies recommended by product managers.

Decisions at the first level of product management involve the marketing mix for an individual brand/product. These decisions are the responsibility of a brand manager (sometimes called a product manager). Decisions regarding the marketing mix for a brand are represented in the product's marketing plan. The plan for a new brand would specify price level, advertising expenditures for the coming year, coupons, trade discounts, distribution facilities, and a five-year statement of projected sales and earnings. The plan for an existing product would focus on any changes in the marketing strategy. Some of these changes might include the product's target market, advertising and promotional expenditures, product characteristics, price level, and recommended distribution strategy.

GENERAL MANAGEMENT WORKFLOW

Top management formulates corporate objectives that become the basis for planning the product line. Product-line managers formulate objectives for their line to guide brand managers in developing the marketing mix for individual brands. Brand strategies are then formulated and incorporated into the product-line plan, which is in turn incorporated into the corporate plan. The corporate plan details changes in the firm's product lines and specifies strategies for growth. Once plans have been formulated, financial allocations flow from top management to product line and then to brand management for implementation. Implementation of the plan requires tracking performance and providing data from brand to product line to top management for evaluation and control. Evaluation of the current plan then becomes the first step in the next planning cycle, since it provides a basis for examining the company's current offerings and recommending modifications as a result of past performance.

PRODUCT-MIX ANALYSIS

Because top management is ultimately responsible for the product mix and the resulting profits or losses, they often analyze the company product mix. The first assessment involves the area of opportunity in a particular industry or market. Opportunity is generally defined in terms of current industry growth or potential attractiveness as an investment. The second criterion is the company's ability to exploit opportunity, which is based on its current or potential position in the industry. The company's position can be measured in terms of market share if it is currently in the market, or in terms of its resources if it is considering entering the market. These two factorsopportunity and the company's ability to exploit itprovide four different options for a company to follow.

  1. High opportunity and ability to exploit it result in the firm's introducing new products or expanding markets for existing products to ensure future growth.
  2. Low opportunity but a strong current market position will generally result in the company's attempting to maintain its position to ensure current profitability.
  3. High opportunity but a lack of ability to exploit it results in either (a) attempting to acquire the necessary resources or (b) deciding not to further pursue opportunity in these markets.
  4. Low opportunity and a weak market position will result in either (a) avoiding these markets or (b) divesting existing products in them.

These options provide a basis for the firm to evaluate new and existing products in an attempt to achieve balance between current and future growth. This analysis may cause the product mix to change, depending on what management decides.

The most widely used approach to product portfolio analysis is the model developed by the Boston Consulting Group (BCG). The BCG analysis emphasizes two main criteria in evaluating the firm's product mix: the market growth rate and the product's relative market share. BCG uses these two criteria because they are closely related to profitability, which is why top management often uses the BCG analysis. Proper analysis and conclusions may lead to significant changes to the company's product mix, product line, and product offerings.

The market growth rate represents the products' category position in the product life cycle. Products in the introductory and growth phases require more investment because of research and development and initial marketing costs for advertising, selling, and distribution. This category is also regarded as a high-growth area (e.g., the Internet). Relative market share represents the company's competitive strength (or estimated strength for a new entry). Market share is compared to that of the leading competitor. Once the analysis has been done using the market growth rate and relative market share, products are placed into one of four categories.

  • Stars : Products with high growth and market share are known as stars. Because these products have high potential for profitability, they should be given top priority in financing, advertising, product positioning, and distribution. As a result, they need significant amounts of cash to finance rapid growth and frequently show an initial negative cash flow.
  • Cash cows : Products with a high relative market share but in a low growth position are cash cows. These are profitable products that generate more cash than is required to produce and market them. Excess cash should be used to finance high-opportunity areas (stars or problem children). Strategies for cash cows should be designed to sustain current market share rather than to expand it. An expansion strategy would require additional investment, thus decreasing the existing positive cash flow.
  • Problem children : These products have low relative market share but are in a high-growth situation. They are called "problem children" because their eventual direction is not yet clear. The firm should invest heavily in those that sales forecasts indicate might have a reasonable chance to become stars. Otherwise divestment is the best course, since problem children may become dogs and thereby candidates for deletion.
  • Dogs : Products in the category are clearly candidates for deletion. Such products have low market shares and unlike problem children, have no real prospect for growth. Eliminating a dog is not always necessary, since there are strategies for dogs that could make them profitable in the short term. These strategies involve "harvesting" these products by eliminating marketing support and selling the product only to intensely loyal consumers who will buy in the absence of advertising. However, over the long term companies will seek to eliminate dogs.

As can be seen from the description of the four BCG alternatives, products are evaluated as producers or users of cash. Products with a positive cash flow will finance high-opportunity products that need cash. The emphasis on cash flow stems from management's belief that it is better to finance new entries and to support existing products with internally produced funds than to increase debt or equity in the company.

Based on this belief, companies will normally take money from cash cows and divert it to stars and to some problem children. The hope is that the stars will turn into cash cows and the problem children will turn into stars. The dogs will continue to receive lower funding and eventually be dropped.

CONCLUSION

Managing the product mix for a company is very demanding and requires constant attention. Top management must provide accurate and timely (BCG) analysis of their company's product mix so the appropriate adjustments can be made to the product line and individual products.

see also Marketing Mix

bibliography

Assael, Henry (1985). Marketing Management: Strategy and Action. Boston: Kent Publishing Company.

Kinnear, Thomas C., and Bernhardt, Kenneth L. (1990). Principles of Marketing. Glenview, IL: Scott, Foresman/Little, Brown Higher Education.

Dickson, Peter R. (1994). Marketing Management. Harcourt Brace College Publishers.

Kotler, Philip, and Armstrong, Gary (2005). Principles of Marketing. Upper Saddle River, NJ: Pearson Prentice-Hall.

Myers, James H. (1986). Marketing. New York: McGraw-Hill.

Schewe, Charles D., and Smith, Reuben M. (1983). Marketing: Concepts and Applications. New York: McGraw-Hill.

Michael J. Milbier

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"Product Mix." Encyclopedia of Business and Finance, 2nd ed.. . Encyclopedia.com. 22 Aug. 2017 <http://www.encyclopedia.com>.

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"Product Mix." Encyclopedia of Business and Finance, 2nd ed.. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/finance/finance-and-accounting-magazines/product-mix

Product Lines

PRODUCT LINES

The product mix of a company is the total composite of products offered by that organization. A product line is a group of products within the product mix that are closely related, either because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges.

Product-line decisions are concerned with the combination of individual products offered in a given line. The responsibility for a given product line resides with a product-line manager (sometimes called a product-group manager), who supervises several product managers who, in turn, are responsible for individual products within the line. A product is a distinct unit within the product line that is distinguishable by size, price, appearance, or some other attribute. Decisions about a product line are usually incorporated into a divisional-level marketing plan, which specifies changes in the product lines and allocations to products in each line. Product-line managers normally have the following responsibilities: (1) Consider expansion of a given product line; (2) consider products for deletion from the product line; (3) evaluate the effects of product additions and deletions on the profitability of other items in the line; and (4) allocate resources to individual products in the line on the basis of marketing strategies recommended by product managers.

One strategy organizations can employ to help sell their products is to use brand-identification strategies. Brand identification is generally defined as creating a brand with positive consumer benefits, resulting in consumer loyalty and repeat purchasing. Other benefits of brand identification include (1) strong in-store recognition, (2) stronger competition against competitors' products, (3) better distribution, and (4) better in-store shelf position. Organizations have four basic types of branding available: individual brand names, family brand names, product-line brand names, and corporate brand names.

Individual brand names can be used to establish brand identification without reference to an integrated product line or to the corporate name. Each brand is sold individually and stands or falls on its own. Family brand names involve the opposite strategyincluding the firms' total product mix under one family name. The corporate name, rather than the brand name, is emphasized in order to leverage the high-quality name of the organization. This can reduce advertising and marketing costs. Product-line brand names involve a strategy midway between an individual brand name and a family brand name strategy. All brands within the product line have a common name. Product-line brand names are used when a company produces diverse product lines that require separate identification. Some companies employ the corporate brand name strategy. This strategy associates a strong corporate entity with a brand while maintaining the brand's individuality. If successful, it provides the advantages of both a family brand name and an individual brand name strategy.

An important concept for any product-line manager is the product life cycle, which is defined as the various stages a product goes through (introduction, growth, maturity, and decline). The primary function of the introduction stage is to create a solid brand name for the new product. Television, Internet, radio, and print advertisements


are coordinated to provide the maximum brand awareness. In the growth stage, the company focuses on creating loyalty to the specific product and also attempts to make minor improvements. Advertising emphasizes the benefits of the product, since the name is already known. When the maturity stage begins, sales start to level off because of increased competition, changes in consumer behavior, or technological advances that make the product less desirable than that of its competitors. In this stage, a company may decide to put limited resources into an advertising campaign to boost sales or create a new image. In addition, minor adjustments might be made to packaging (e.g., a new label) to reattract consumers. The decline stage occurs when sales begin to decline. The company needs to choose between modifying the product to increase sales or discontinuing the product when it finally cannot generate acceptable profits.

The product life cycle is an extremely important element when a company reviews its product line. One of the best ways to extend the life of a product and product line is for a company to use a revitalization strategy. When this tactic is used, the company changes the marketing plan and looks for new markets for the existing product line and the products within it. Here too it is critical that the company is successful in repositioning the product to new market segments. Another method used to extend the life cycle of a product line is a line-modernization strategy, which focuses on either upgrading the entire product line or modernizing specifics products within the line in order to spark new consumer interest in the product or entire product line.

Other general product-line strategies include product-line additions, product-line deletions, and holding strategy. Product-line additions involve adding new products to a product line so new market segments can be covered. Product-line deletions involve removing a product that has not performed well or is not making enough money. A holding strategy involves maintaining the status quo. The product line stays the same and no major modifications or marketing strategy changes are planned. In order to have a profitable product line, the product line manager will need to employ a variety of the strategies.

see also Marketing

bibliography

Assael, Henry (1985). Marketing Management: Strategy and Action. Boston: Kent Publishing Company.

Dickson, Peter R. (1994). Marketing Management. New York: Harcourt Brace.

Kinnear, Thomas C., and Bernhardt, Kenneth L. (1983). Principles of Marketing. Glenview, IL: Scott, Foresman.

Kotler, Philip, and Armstrong, Gary (2005). Principles of Marketing. Upper Saddle River, NJ: Pearson Prentice-Hall.

Myers, James H. (1986). Marketing. New York: McGraw-Hill.

Schewe, Charles D., and Smith, Reuben M. (1983). Marketing: Concepts and Applications. New York: McGraw-Hill.

Michael J. Milbier

Cite this article
Pick a style below, and copy the text for your bibliography.

  • MLA
  • Chicago
  • APA

"Product Lines." Encyclopedia of Business and Finance, 2nd ed.. . Encyclopedia.com. 22 Aug. 2017 <http://www.encyclopedia.com>.

"Product Lines." Encyclopedia of Business and Finance, 2nd ed.. . Encyclopedia.com. (August 22, 2017). http://www.encyclopedia.com/finance/finance-and-accounting-magazines/product-lines

"Product Lines." Encyclopedia of Business and Finance, 2nd ed.. . Retrieved August 22, 2017 from Encyclopedia.com: http://www.encyclopedia.com/finance/finance-and-accounting-magazines/product-lines