Let’s Talk 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.

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” by Alison Griswold:
http://www.slate.com/blogs/moneybox/2014/04/02/breakfast_wars_mcdonald_s_taco_bell_d
unkin_donuts_and_fast_food_sellers.html.

• 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.

LAP-PM-003-SP ©2020, MBA Research and Curriculum Center® Mix and Match 1
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.

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” by
Nicholas Rossolillo: https://www.fool.com/investing/2020/02/21/dominos-comp-store-sales-
figures-q4-earnings.aspx.

• 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.

LAP-PM-003-SP ©2020, MBA Research and Curriculum Center® Mix and Match 2
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.

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
LAP-PM-003-SP ©2020, MBA Research and Curriculum Center® Mix and Match 3
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
LAP-PM-003-SP ©2020, MBA Research and Curriculum Center® Mix and Match 4
 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.

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.

Summary
The ways in which businesses 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. They include expansion, contraction, alteration,
trading up, trading down, and positioning.

LAP-PM-003-SP ©2020, MBA Research and Curriculum Center® Mix and Match 5