PRODUCT LINE DECISIONS
A product line is a group of products related on the basis of similar customers, marketing methods or product characteristics. The range of product lines establishes a product mix. The two types of product lines are those having complementary and substitute products.
What are complementary products?
In a product line, complementary products are those designed to add to the original product. For example, a company producing computers would also manufacture other items such as a mouse, printers, and software.
What are substitute products?
Substitute products are those that appeal to the same basic market segment, but have different specific characteristics. For example, a soup company has a full line of soups including chicken, tomato, turkey, pea, etc. Each soup can easily be substituted for the other.
How long should a product line be?
Product line length is determined by the number of products supported in a particular product line. Companies seeking high market share and growth have longer product lines.
Profitability is also affected by product line length. A product line has too many products if adding to the line reduces profits, while it has too few if profits can be increased by adding products.
Increasing product length tends to increase associated costs including engineering, inventory, ordering and transportation costs. Companies having successful products often tend to increase product line length in order to increase profits. However, overextended product lines can cause diminishing returns.
Lines can be extended by stretching and filling.
What is product line stretching?
Product line stretching develops when a firm adds additional products to a product line. Product lines can be stretched downward, upward, or both.
What is downward product line stretching?
A company producing "high end" products, in the more expensive range of the market segment, stretches downward by offering lower priced products in the market segment. Offering lower priced products will appeal to a wider range of consumers who may upgrade upon seeing the feature differences between the low and high end products. Using the "downward stretch" can be a competitive marketing strategy to challenge competitors either at the high or low end of the market segment.
What is upward product line stretching?
A company producing "low end" products, in the least expensive range of the market segment, stretches upward by offering higher priced products in the market segment. Companies may consider the "upward stretch" for a number of reasons. They may be well entrenched at the lower end of the market segment, but desire greater unit margins by moving upward in the market (for instance, the Japanese automotive companies implemented an "upward stretch" by successfully introducing luxury cars only after becoming well established in the lower end of the market with compact cars). The company may also be interested in experiencing a faster growth rate at the upper end of the market when those conditions exist.
What is two-way market stretching?
Two-way market stretching applies to companies in the middle of a market that want to expand their product line upward and downward. The basic objective is to become competitive in markets it did not previously serve by introducing products into those respective markets.