Product Line Decisions

Product Line Decisions mean a company offers similar products to solve a range of similar problems that target customers have.

To understand Product Line Decisions, we can look at smartphone manufacturers like Samsung and Apple. They are known to customers as smartphone makers but are more than that. Both Samsung and Apple provide chargers, wired earphones, wireless earphones, smartwatches, and more. This is where the concept of product line comes in.

While a smartphone and wireless earphones (Apple air-pod and Samsung Buds) are not the same, the same type of customer uses them. Apple goes beyond providing desktop computers and software; they provide mobile apps, cloud storage, and video streaming service to hook an iPhone buyer with Apple.

What is the Product Line?

A product line is a group of closely related products because they function similarly, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges.

For example;

Toyota produces several lines of cars.
Colgate Palmolive produces several lines of toiletries.
Apple or Samsung provides smartphone and related hardware that smartphone users need.
Microsoft, Google, Apple provides the operating system, the hardware to run the OS, software, and apps to make use of the operating system and hardware.
CocaCola and Pepsi provide a whole range of soft drinks to just water.
Just look at any furniture company; they just don’t sell a dining table or chair. They try to provide all your furniture needs.
Philips doesn’t just make lightbulbs; they provide a range of home appliances that you can think of, from toaster to micro-over, hairdryer to shaver. Just name any electronics appliances you use in your home, and chances are Philips has you covered.
If you visit iEduNote.com, you can find notes and articles not just on marketing but also other subjects like management, accounting, organization, leadership, and much more.

So, groups of products that are used together, sold to the same customer group, fall within given price ranges, or marketed through the same channels are known as product lines.

These groupings are typically made based on product use, but can also be made based on the manufacturing method, size, or some other direction.

So the product line means a group of products that are related because;

they perform similar functions,
they perform complementary functions,
they are marketed and sold to the same customer groups,
they fall in the same price range.

Product-Line Analysis

An executive of the company is responsible for managing a particular product line, and, in doing so, he needs two important information.

He should first know the sales and profits of each of the items constituting the line of the product, and second, he should know the comparative status of his product line with that of the competitors.

In calculating the sales and profits of an item, he finds out the percentage of total sales and profits contributed by the item in the question of the product line. He thus finds out the same percentage for each of the items in the line.

In finding out the competitive picture of the product line with that of competitors’ product lines or knowing the product-line market profile, the line manager needs to review how the product line is positioned against the product lines of competitors.

Based on this mapping, the executive designs a marketing strategy for his product line. This mapping can help the product line executive to know about the buying preferences of different segments.

Product-Line Length: It is one of the most important responsibilities of the product-line executive/manager to decide on the optimal length of the line of his product so that he can add items in the line if it is short and can drop items from the line if it is long to increase profitability.

The product-line manager decides on the length based on the objectives of the company. For example, longer lines are carried by companies that want to be positioned as full-line companies and/or seeking high market
share and market growth, and on the other hand, shorter lines are carried by companies seeking high profit.

Types of Product Line Decisions – Product Line Strategies

One of the key jobs of the marketing manager is to select a mix of compatible products for the firm that promotes efficiency in selling, production, pricing, promotion, and distribution. The product line decisions are (1) product line expansion, (2) product line reposition and (3) product line contraction.

The marketing executive will make a variety of product line decisions over the life of a product.

Should the line be expanded to meet the needs of a broader range of consumers?
Should the product be repositioned to appeal to a different target market?
At what point should the product line be contracted, and which items eliminated?

We shall first give you a brief idea of the product line strategies than shall make a detailed discussion on it.

Types of product line decisions are;

Product Line Expansion or Filling (Width, Depth, Dual).
Product Line Reposition (Product Modification, Product Trading).
Product Line Contraction (Harvest, Continuation, Concentration).

1. Product Line Expansion

The marketing executive would consider the opportunities for product line expansion once a product has achieved market success, adding related products to the line to increase the target market. Although possible new offerings can be very different from the original product, most often they are not.

A product line can be expanded lengthened by adding more items within its present range. Reasons for filling product lines are;

earning an extra profit,
satisfying intermediaries,
utilizing excess capacity,
emerging as the leading full-line company, and
capturing parts of the market that would otherwise be lost to the competitors.

Thus, Sony added solar-powered and waterproof walkmans in its walkman line.

However, product line filling is unjustified if it results in the disappearance of one or more existing items and customer confusion. It should be ensured that new items are easily distinguishable from the existing ones.

Product Line Expansion Methods

The expansion of the product is typically implemented by adding greater width or depth to the line. The intent is to expand the target market.

An example of adding width might be drug chains selling motor oil and other non-drug items.

Increasing the depth of the product adds more variations to the original product – different sizes, colors, styles, qualities, etc.

The intent is to appeal to present nonbuyers by offering something for everybody. The strengths and weaknesses of depth extension are nearly the opposite of those for width extension.

Extending depth maintains greater consistency within the mix, but it increases the risks by concentrating its offerings in one market.

The other method of increasing the line extension is the combination of both width and depth extension known as dual extension.

This strategy uses the advantages of both approaches while nullifying some of the other individual weaknesses. It requires sufficient funds to support the extensive market efforts necessary to make all of its products successful.

Advantages and Disadvantages of Product Line Expansion

Product line expansion decision, however, is not an easy one. It opens up new target markets along with the one already being penetrated.

Some of the new items are relatively easy to develop since they are usually direct spin-offs of the original item. The chances of success for other items in the line are also increased by accepting the original product.

When the other items are successful, market shares in all target segments are likely to improve.

Finally, product line expansion allows a firm to become more of a full-line competitor.

In addition to the benefits of a product line expansion, shortcomings also exist. Without a doubt, the greatest disadvantage is the added expense of expanding the line.

Though the costs of developing new products for the line may be quite low, the costs of marketing them are not.

Expenses are associated with promoting, maintaining adequate inventory levels, transporting the goods, and adding overhead costs for sales and managerial personnel.

The other disadvantage of expansion is the burden on production capacity or store shelf space.

Again, product line expansion can impede product diversification.

Usually, the products are closely related in use and, therefore, the company’s business may become too narrow. Changes in technology or customer buying habits can have a greater impact on the company’s overall sales and profits.

2. Product Line Reposition

Product repositioning is a strategy that changes the target market for a given product. The critical difference between product extension and repositioning is that with repositioning, no new products are necessarily added to the line.

Here the marketing executive places the product into another market segment.

Three main reasons are there for adopting a repositioning strategy.

First, if the product was incorrectly positioned initially, the marketing executive could modify the product to fit the existing market or find a new market.

Second, the original market segment may not show much future growth potential or be as viable as initially expected. Changes in consumer demography, buying patterns and preferences, and more intense competition within the segment can reduce the attractiveness of any target market.

The third reason for repositioning occurs when the product has achieved all it can in the original market segment.

Major product line decisions show the two major decisions a marketing executive must make to reposition a product:

Product Modification(Modernization of Product): Should there be any modification in the tangible product?
Product Line Stretching(Product Trading Up, Down, or Across): Should the product be traded up, traded down, or traded across?

Let us look at each of the above two in turn:

Product Modification: Modernization of Product

Although a company’s product line length may seem to be adequate, it may require modernization. For example, a company’s toiletries line developed in the 1980s may be lost out to better packaged competitors’ lines.

The main consideration in product line modernization is whether to overhaul the line gradually or all at once. A gradual approach enables the company to watch how customers and intermediaries like the new styles before changing the line.

Gradual modernization also causes less pressure on the company’s cash flow. A major demerit of gradual modernization is that it allows the competitors to notice changes and initiate redesigning their lines.

Inadequate product-line length calls for line modernization decisions.

Since this is the era of extreme competition, and competitors are constantly upgrading their products, a company needs to keep pace with it to survive in the face of competition.

A company has two options in line modernization; modernize all at once or overhaul the line piece by piece. Both have got advantages and disadvantages, and a company should decide carefully on modernization decisions after assessing the overall situation and the company’s objectives as well as capabilities.

If a product is repositioned, the marketing executive will make some changes in the physical product so that it better matches the needs of the target market. Some adjustments are quite insignificant, while others are quite distinct.

Usually, the change will be in the form of product quality, style, or feature.

Product Line Modification with “Quality”

The most common product changes are the quality change is the modification of the product in such a way as to alter the product’s functional performance.

In some cases, improvements are made in a product to make it function better. If the marketer wants to improve the quality to reposition it for a distinct group, the product’s price and promotional orientation will also require to be changed.

To reach an especially price-sensitive market segment, the product’s price has to be very low. But, to maintain profitability, the marketing executive may have to reduce production costs.

Typically, slight changes will be made by the marketer in the product’s quality or through a feature or style adjustment.

Product Line Modification with “Style“

Another modification is a style change – an adjustment in the appearance of the product, but no change in its performance or how it is used.

The digital clock is an example of a style change. Style modifications involve changes in color, size, shape, package, brand, or some other product attribute.

The other type of modification is a feature change – a modification of the product which changes how it performs and/or the way consumers buy and use it.

For example, some clocks not only tell time but also serve as alarm clocks.

Changes in features are considerably different than either quality or style modifications. A product’s uses are influenced by a feature change.

The new target market will use the product differently, and some degree of reeducating the market segment may be required.

Product Line Modification with “Featuring“

The product line featuring is the selection of one or a few items that represent the whole line. Sometimes, producers feature promotional models at the low end of the line to serve as “traffic builders.” For example, Mark & Spencer might advertise a special low-priced gents shirt to attract shoppers.

At other times, producers feature a high-end item to give the product line “Class.” For example, TAG Heuer advertises a $12000 watch that few people buy, but that acts as a “flagship” to enhance the whole line.

Product Line Stretching – Product Trading Up, Down, or Across

While repositioning, the marketing executive must decide whether to reposition the product by trading it up, down, or across.

Understanding Product Line Length

First of all, a producer has to decide on product line length. A product line is considered short when there exist opportunities to increase profits by adding items.

Reversibly product line is too long when dropping some of the existing items results in increased profit—company objectives guide product line length decision.

Companies wanting to emerges full-line producers or aspiring to grab high market share and growth generally maintain longer lines. Companies interested in high short-term gains usually maintain shorter lines.

Product lines usually lengthen over time.

Excess manufacturing capacity, sales force, and distributors’ pressure and opportunity for increasing sales and profits are the factors that encourage the producer to lengthen product line.

Adding new products leads to an increase in cost.

Design and engineering costs, inventory costs, manufacturing change over costs, order processing costs, transportation costs, and promotional costs go up as a result of introducing new items.

In such a situation, the company screens the whole product line and decides to drop unprofitable items and thus keeps the product line under control.

Product Line Stretching Methods

Product line stretching takes place when a company lengthens its product line beyond its current range. A company can increase the length of the product line with three product line stretching Methods;

Stretching Upward: Targets product for a higher level and higher-priced market segment.
Stretching Downward: Targets the product for a lower level and lower-priced market segment.
Stretching Both Ways: Targets a different group of upper, middle, or lower class buyers.

A company’s product line covers a certain range of the products offered by the industry—for example, Ford automobiles and located in the medium-high price range of the automobile market. SUZUKI focuses on the low-to-medium price range.

let’s try to understand The following figure shows that the company can stretch its line downward, upward, or both ways;

1. Stretching Upward: Product Trading Up Strategy

Companies at the lower end of the market may be enticed to enter the higher end by a faster growth rate or higher margins. Besides, they may intend to emerge as a full-line manufacturer and add prestige to their existing products.

Risks involved in upward stretching are

higher-end competitors may be stronger,
prospective customers may not be convinced about the quality of the products, and
the company’s salespeople and distributors may not be suitable enough to operate at the higher end of the market.

This up strategy targets the product for a higher level and a higher-priced market segment. It may be higher income, more status, better quality, or some other factor that makes the repositioned product appear better than the original one.

In reality, this is the most difficult, costly, and time-consuming approach to repositioning, especially if the brand remains the same.

It may so happen consumers are not easily or quickly convinced that a once medium or lower priced product is now a status product commanding a high price.

2. Stretching Downward: Product Trading Down

Many companies may start with the upper end of the market and later stretch their lines downward. This happens due to many reasons.

A company may have first entered the upper end to establish a quality image and decided to come downward later.

It may react to a competitor’s attack on the upper end by penetrating the low end. A company may add a low-end product to capture a portion of the market that otherwise would attract a new competitor. It may locate faster growth taking place at the low end.

Product line stretching downward or product trading down;

targets the product for a lower level and lower-priced market segment,
the product is repositioned to at least a slightly lower status or quality level,
it is relatively less difficult to do because of the image of the brand and all the selling effort that went into it enhance the salability of the product.

However, stretching downward involves some risks;

The competitors might move into the higher end; dealers may be reluctant to handle the lower-end products, and
increase in revenue due to the sales of lower-end products may be offset by the decrease in the sales of higher-end products, all leading to a fall in the profitability of the company.

Trading down is relatively easier to accomplish, although not necessarily more desirable. It is likely that consumers believe they are getting a more prestigious product for a price comparable to lesser status competing items.

This strategy is sometimes adopted in conjunction with product line expansion when family branding is used.

So long there is a big difference in market levels does not exist, an addition to the line can reap the benefits of an association with higher status branded products. Here is that the traded down product will injure the image of the higher status ones.

3. Stretching Both Ways: Product Trading Across

Companies operating in the middle range of the market may go for stretching their lines in both directions. The risk involved in this strategy is that the target buyers of the upper end may move to the lower end. The company may even lose these buyers to its competitors.

Trading across is repositioning the product to appeal to the same buyer as in the original segment.

Under this strategy, the product could simply be targeted after a different group of upper, middle, or lower class buyers. This strategy can help in solving some image confusion problems.

It is often used when the product has achieved a high degree of success in the original segment. The executive uses that recognition advantageously in appealing to other groups at the same level.

3. Product Line Contraction

The product line contraction strategy is followed to reduce the number of items the company offers for sale. A product that is retained on the market past its useful life drains the company’s money and executive time from more promising pursuits.

Such a product tends to acquire a bad image that can carry over into the rest of the product mix. There are certain reasons for which a company may hesitate to eliminate or contract its product line.

They are as follows :

First, elimination lacks glamour. Developing new products and managing existing ones is more exciting and glamorous than killing products and laying off workers.
Second, elimination is a very sensitive activity on the part of the management. Top-level company executives created many products that have been developed. Eliminating the Managing Director’s baby is not an especially good way to endear oneself with top management.
Third, elimination is a very difficult process. Deciding whether to eliminate a product means pulling it off the market, timing the removal, and dealing with Channel members and customers who will be affected is no simple undertaking.

A marketer must overcome these and other obstacles to items from the company’s product mix. The contraction process is composed of two phases.

They are;

analyzing the product for possible removal; and
removing it from the mix.

(A) Analyzing Products for Elimination

Someday or other, every product will have to be removed from the marketplace. It is just a matter of time until consumer needs or preferences will change, or other products will render it undesirable or obsolete.

But, there is no simple way to identify a product that is ready for elimination. The decision of product elimination is seldom clear-cut.

Product contraction involves identifying items before they are ready for elimination and then deleting them on a planned basis.

A marketer must look at indications in either the product’s performance or the marketplace in general. In the general following, indications are taken into account by the marketing executive in this respect.

A consistent decline in sales and profits.
The increased amount of executive and sales force time needed to sustain sales.
Frequent changes are needed at the product price.
Continued loss of market share. As the product loses its customer appeal, it will also begin to lose its market position.
Increasingly worse, customer image. One of the surest and most critical symptom of a weak product is its worsening customer image.

A marketer must carefully monitor the product’s operating performance when identifying a weak product. Analyzing sales, profit records, trends, and projections, and evaluating a product’s market share and the strengths of its competitors, give the marketing executive a clue to a product’s strength.

In the end, the executive can use marketing research to assess customer attitude toward the product and closely watch for any image change.

Elimination is a very difficult task. Elimination does not take place automatically, even if a product is weak. A marketer has to consider many factors before he decides to contract his product line.

In reality, even a weak product may be retained for several reasons, such as:

It helps fill out the company’s product line. To maintain a full line status, a marketer might keep a product on the market well past its useful life.
Retaining a weak product may facilitate the sales of other complimentary items in the product mix. The profits of individual items, of course, are not as important as the total profits for the company. The ultimate effect of retaining a weak, even unprofitable product might enhance profits.
Retaining a weak product also helps reduce the company’s fixed costs. Though a product may not show a net profit, it can help cover the fixed costs of the company, if its revenues exceed variable costs.
A particularly important group of customers may want a weak product. Whether it be a member of the channel of distribution or a specific group of end buyers, the executive may want to keep these groups happy to support existing and future products of the firm.

(B) Removing the Product From the Mix

After a weak product has been identified, and a decision is made to eliminate it, plans must be developed for contracting the line.

During this phase down process, the marketing executive has several options. He may reduce all marketing expenses and reap as much profit as possible, a process sometimes known as harvesting strategy.

He may simply continue with the existing strategy until the product is finally removed – a continuation strategy.

Finally, the executive might narrow the target market down to the segment with the greatest potential – a concentration strategy -and direct all efforts towards it.

A marketer cannot simply eliminate the product without special preparations.

For example, suppliers and buyers need to be notified, production facilities rescheduled, shelves remerchandised (in case of a retailer), more spare parts made (if necessary), and employees rescheduled or laid off.

As a whole, line contraction can cause considerable turmoil within the company, with the rest of the channel of distribution, and with the end buyer.

To minimize the middleman and consumer complaints involved with product elimination, the marketing executive will typically phase out an item rather than suddenly eliminate it from the line.

Moreover, employees who might be affected must be told of the decision and reassigned or retained if possible. Production facilities must be redesigned to make use of the future extra capacity.

Arrangements must be made to take back existing products that cannot be sold, or specials arrangements must be taken to clear out unsold units. Marketers will have to be prepared for possible consumer complaints since there will always be at least a few loyal buyers.

To reduce disruption to the company, customers, and other channel members, a company must make extensive efforts while eliminating a product.

Many channel members and customers will not care if a product they sell or use is being removed from the market, while some channel members find the product very profitable. Some consumers believe it exactly suits their needs.