Chapter 10 Product-Mix Strategies Copyright © 2001 by McGraw-Hill Ryerson Limited Sommers  Barnes Ninth Canadian Edition Presentation by Karen A. Blotnicky Karen A. Blotnicky Mount Saint Vincent University, Halifax, NS

Copyright © 2001 McGraw-Hill Ryerson Limited Chapter Goals To gain an understanding of: The difference between product mix and product line Major product-mix strategies: Positioning, expansion, alteration, contraction, trading up and trading down Managing a product throughout the Product Life Cycle Planned obsolescence Style and fashion The fashion-adoption process

Copyright © 2001 McGraw-Hill Ryerson Limited Product Mix and Product Line product mixThe product mix is the set of all products offered for sale by a company. A product mix has two dimensions: Breadth Breadth - the number of product lines carried. Depth. Depth - the variety of sizes, colours, and models offered within each product line. product lineA product line is a broad group of products, intended for similar uses and having similar characteristics.

Copyright © 2001 McGraw-Hill Ryerson Limited BREADTH (DIFFERENT LINES) Lawn mowersGardening toolsLawn furniture Power rotary Power reel Hand-powered DEPTH (ASSORTMENT WITHIN A LINE) Rakes Hoes Shovels Chairs Chaise lounges Benches Each in various sizes and prices Each in various sizes and prices Various sizes and prices in redwood or aluminium with plastic webbing Product Mix - An Example

Copyright © 2001 McGraw-Hill Ryerson Limited Product Mix Strategies Positioning the Product In Relation to a Competitor In Relation to a Product Class or Attribute In Relation to a Target Market By Price and Quality Product-Mix Expansion Line Extension Mix Extension

Copyright © 2001 McGraw-Hill Ryerson Limited Expanding the Product Mix Mix-extension strategies Mix-extension strategies include: Same brand, related product (Tim Horton coffeemaker) Same brand, unrelated product (Swiss Army watch) Different brand, unrelated product (Pepsi & KFC) Different brand, related product (P&G adds Luvs diapers; already makes Pampers)

Copyright © 2001 McGraw-Hill Ryerson Limited Trading Up and Trading Down Trading up: Trading up: Adding a higher-priced product to a line to attract a higher- income market and improve the sales of existing lower-priced products. Trading down: Trading down: Adding a lower-priced item to a line of prestige products to encourage purchases from people who cannot afford the higher-priced product, but want the status.

Copyright © 2001 McGraw-Hill Ryerson Limited Other Product Mix Strategies Alteration of Existing Products: Alteration of Existing Products: Improve an established product with new design, new package, new uses. Product-Mix Contraction: Product-Mix Contraction: Eliminate an entire line or reduce assortment within it. Pruning to reduce similar brands. Dump unprofitable or indistinct brands.

Copyright © 2001 McGraw-Hill Ryerson Limited The Product Life Cycle the concept of the product life cycle applies to product categories, not to brands; it is related to the concept of diffusion of innovation different products will have differently- shaped life cycle curves; will diffuse at different rates a product is normally perceived to pass through four stages over its life cycle; introduction, growth, maturity, and decline each stage requires different marketing strategies

Copyright © 2001 McGraw-Hill Ryerson Limited Product Life Cycle Stages Introduction Introduction —most risky and expensive. Growth Growth —both sales and profits rise, often rapidly. Maturity Maturity —sales increase at a decreasing rate and profits decline. Decline Decline —demand drops, often because of another product development.

Copyright © 2001 McGraw-Hill Ryerson Limited Dollars Time in years Loss 0 Profit Sales Volume INTRODUCTIONGROWTHMATURITYDECLINE Product Life Cycle Curve

Copyright © 2001 McGraw-Hill Ryerson Limited Strategic Implications of the Stages introductory stage:introductory stage: developing the market, creating awareness, reaching the innovators growth stage:growth stage: competition begins, sales grow quickly, profits peak, market penetration maturity stage:maturity stage: competition is intense, sales slow down, differentiated product offerings, customers are brand loyal, few new entrants decline stage:decline stage: customers move to other options, competitors leave, profits are low, consider exit

Copyright © 2001 McGraw-Hill Ryerson Limited Characteristics of Life Cycles length of the life cycle will vary across markets; some are quite short and may be getting shorter some fads have very short life cycles, while other products stay at maturity for years in high-tech markets, life cycles are very short some products do not make it through all four stages; they may fail in introduction the life cycle must be considered in relation to a specific market; stage may vary across markets

Copyright © 2001 McGraw-Hill Ryerson Limited Managing the Life Cycle Successful life-cycle management requires predicting the shape of the curve and then successfully adapting strategies at each stage. when to consider entering the market how to manage to capitalize on growth it is possible to develop strategies that will extend the maturity stage; modify the product, devise new uses, or design new appeals greatest challenge comes at the decline stage which may result in product abandonment

Copyright © 2001 McGraw-Hill Ryerson Limited Part a - Extended introduction stage Part b - Fad Part c - Indefinite maturity stage Time in years Aggregate sales Aggregate sales Different Life Cycles

Copyright © 2001 McGraw-Hill Ryerson Limited Planned Obsolescence Fashion and Style Planned Obsolescence: Technological or functional obsolescence; other things do it better now. Style obsolescence: Still serviceable, but looks out of date now.Style: A distinctive manner of construction or presentation in any art, product or endeavour.Fashion: Any style that is accepted and purchased by successive groups of people over a long period of time.

Copyright © 2001 McGraw-Hill Ryerson Limited Fashion-Adoption Process Series of buying waves as a given style is popularly accepted by one group after another. Three theories of fashion adoption: Trickle-down Trickle-down — a given fashion flows down through several socioeconomic levels. Trickle-across Trickle-across — the fashion moves horizontally and simultaneously within several socioeconomic levels. Trickle-up Trickle-up — a style first becomes popular at lower levels and then flows upward.

Copyright © 2001 McGraw-Hill Ryerson Limited TRICKLE- UP Product adopted first by lower socio- economic group TRICKLE- DOWN Product offered first to upper socio- economic group Product introduced at same time in all three types of stores: TRICKLE-ACROSS Exclusive high-priced specialty stores (boutiques) TRICKLE-ACROSS Medium-priced department stores and specialty stores TRICKLE-ACROSS Discount stores Fashion Adoption Theories in Action