Solutions to Assignments
MBA and MBA (Banking & Finance)
MMPC-006 - Marketing Management
MMPC-006/TMA/JULY/2022
Question No. 2.
(a) Discuss the product line decisions that a firm should consider to pursue and consolidate its position in the face of competition.
Product line decisions involve identifying specific products a company wishes to offer and very often
a product manager is appointed to look after a product line/s. She/he is responsible for maximising
market share and to ensure sustained growth in terms of sales revenue and sales volume resulting in
higher margins. The product line decisions are taken as to how long or short the line should be. A
product line is often meant to cater to requirements of various customer segments of the target market. These decisions are based on the objectives of the company, availability of various resources
and the profit potential of the proposed product lines.
For example, Marico Industries, manufacturer of edible oils offers various products under its flagship
brand ‘Saffola’ to cater to the needs of various customer segments.
Product-Line Analysis
In offering a product line, companies generally develop a basic platform and then modules that can
be added to meet different customer requirements. Product line managers need to know the sales and
profits of each product item in the product line in order to determine which product items to build,
maintain, harvest, or divest. They also need to know each product line’s market profile.
Product-Line Length
The following objectives of a company determine the product line length. One objective is to create a
product to induce up-selling. For example Tata motors introduced Tata Indigo to move customers up
from Tata Indica. Another objective is to create a product that facilitates cross-selling. HP sells
printers as well as PCs/laptops. Yet another objective could be to create a product line to protect
against cyclic economic ups and downs. Samsung offers white goods such as refrigerators, washing
machines, televisions, micro wave ovens, and air conditioners under different brand names to cater to
entry level, mid-level and premium segments. Companies who seek high market share and market
growth generally carry longer product lines while companies that lay emphasis on higher profits
generally carry shorter product lines.
Product lines tend to lengthen over time. It may be due to the following:
- Pressure due to excess production capacity.
- Pressure from sales-force and/or distributors to offer a more complete line as a result of
customer/market demand.
However, as more product items are added costs rise substantially; such as design and engineering
costs, inventory costs, manufacturing changeover costs, order processing costs, transportation costs
and the new promotion costs. Thus, decisions regarding lengthening the products are reviewed
periodically and may sometimes call for pruning the non-profitable product lines.
A company can lengthen its product line in two ways:
i. Line stretching
Line stretching occurs when a company lengthens its product line beyond its current range. This can
be accomplished in following ways:
a. Down-Market stretch
Down-Market stretch is undertaken when a company that has positioned itself in the middle market
may like to introduce a lower-priced product. It may be due to any of the reasons mentioned below:
- It notices strong growth potential as mass retailer
- It may wish to tie up lower end competitors who might otherwise try to move up-market
- It may find that the mid-market is stagnating or declining
However, the company faces challenges in naming the brands while moving down-market. Further,
there are risks involved in moving down-market related to positioning and pricing decisions.
b. Up-Market stretch
Up-Market stretch is undertaken when companies wish to enter the high end of the market for more
growth, higher margins or simply to position themselves as full-line manufacturers. For example, car
manufacturers such as Toyota introduce high end luxury cars (Lexus).
c. Two-way stretch
In Two way stretch, companies operating in the middle market may decide to stretch their line in both
directions. The objective is to seek leadership position in the given market.
ii. Line filling
A product line may also be lengthened by adding more product items with in the current range. The
motives of line filling may include reaching for incremental profits, trying to satisfy dealers who
complain about lost sales because of missing items in the product line, trying to utilize excess
capacity, trying to be a leading full line company and trying to fill gaps to keep out competitors etc.
If over done, line filling may lead to cannibalization and consumer confusion as the company needs
to differentiate the product item in the mind of the consumer.
A company needs to continuously modernize, rationalize and improve its product line by undertaking
‘New Product Development Programme (NPD) from time to time.
(b) Discuss the concept of Product Life Cycle. Elaborate the various stages by taking the example of a shaving cream brand of your choice. What alternatives will you suggest for the brand during its decline stage and why? Offer your reasons.
A company which introduces a new product naturally hopes that the product will contribute to
the profits and provide consumer satisfaction for a long period of time. This however, does not
always happen in practice. So, progressive organizations try to remain aware of what is
happening throughout the life of the product in terms of the sales and the resultant profits.
The Introduction Stage
Let us start thinking from the very beginning about what happens when a new product is
introduced in the market.
Figure I give three optimistic alternatives as to the likely sales trend. If the product is well –
designed, the sales would not increase slowly but would shoot up after some time as in (b).
Rarely would there be a case where they would shoot up as in (c). Poorly designed product may
experience a slow take off as shown in (a). Thus (b) represents a suitable sales trend for a new
product. This stage is called the ‘introduction’ or ‘innovation’ stage in the life cycle of a product.
Since the product has been just introduced and it is natural to expect that it will take some time
before the sales pick up. There are some prerequisites for that too. The product must be brought
to the notice of the customer. It must be available at the distribution/retail outlets and all this takes some time. Therefore, a likely picture of the sales trend in this stage would be (b) as given
in Figure I.
In the introductory stage, there is likely to be no profits or more likely a loss. This loss may
continue for some time depending on the market factors. Thus, the correct answer could have
been either (iii) or (iv). It is because at this stage, considerable amount of funds are being
devoted to promotional expenses with a view to generate sales while the volume of the sales is
low (as already seen in the Figure I). Thus in the beginning, there is likely to be a loss and later
on, as the sales grow the profit might accrue.
The Growth Stage
In case the product launched is successful, the sales must start picking up or rise more rapidly.
The next stage is then reached which is known as the ‘growth stage’. Here the sales would climb
up fast and profit picture will also improve considerably. This is because the cost of distribution
and promotion is now spread over a larger volume of sales. As the volume of production is
increased, the manufacturing cost per unit tends to decline. Thus, from the point of view of
product strategy, this is a very critical stage.
The Maturity Stage
It is too optimistic to think that sales will keep shooting up. At this stage, it is more likely that the
competitors become more active. In case your product is a novel one, by now competition would
have come out with a similar product in the market to compete with yours. Therefore, the sales are likely to be pushed downwards by the competitors while your promotional efforts would
have to be increased to try and sustain the sales. Thus the sales reach a plateau. This is called the
‘maturity stage’ or ‘saturation’. At this point it is difficult to push sales up. With regard to the
‘profit’ picture, the profits are likely to stabilize or start declining as more promotional effort has
to be made now in order to meet competition. Unless of course, you have the largest market
share with your product and it needs no extra push in the market.
The Decline or Obsolescence Stage
Thereafter the sales are likely to decline and the product could reach the `obsolescence' stage.
Steps should be taken to prevent this obsolescence and avoid the decline. This decline that
generally follows could be due to several reasons such as consumer tastes and preferences,
improvement in technology and introduction of better substitutes. This is the stage where the
profits drop rapidly and ultimately the last stage emerges. Retaining such a profit after this stage
may be risky, and certainly not profitable to the organisation.
POSSIBLE ALTERNATIVES IN DECLINE STAGE
Having considered the product life cycle and the inevitability of product decline, the question
which comes to one's mind is what should be done to avoid or postpone this decline.
Consider some of the following points to avoid decline,
1). improve product quality
2). add new product features resulting in extra benefits
3). penetrate new market segments
4). give incentives to distribution channels
5). expand the number of your distribution channels
6). Improve advertising and sales effort
Perhaps, the answer lies in the word `innovation'. That is why it is sometimes said that
innovation is the life-blood of marketing. Innovation can be in any of the 4 Ps of marketing. In
connection with the product, it would mean quality improvement or improvement in features
(e.g. automatic passenger car models) or even style improvements like in case of clothes where
collars are changed from time to time because of the fashion life cycle. Ultimately a time may
come when the product will have to be removed from the product mix.
In practice, there is often a reluctance to do this, particularly from the senior members in the
management hierarchy, who may have got very much attached to such products. This emotional
approach has to be avoided while taking final decision.
The product life cycle concept, therefore, emphasises that there should be a periodical review of
the products. The profitability and financial viability of the product must be assessed constantly.
Products which are difficult to sell affect even the morale of the salesmen, as well as the
distribution outlets. The only excuse for retaining such products is when the unprofitable product
is required to complete the product line to enable distributors to meet competition. Unless there
is some strong reason, unprofitable products should be removed from the product mix of the
organisation.
Now let us consider the time period of this product life cycle. In case of some products, it is
extremely short, whereas in others, it is very long. In case of fads, the life cycle is very brief. For
example, in India the hula hoop'(is twirled around the waist, limbs or neck. They have been used
by children and adults. The new plastic version was popularized in 1958 by the Wham-O toy
company and became a fad) completed the cycle within a few months. As against this, the horse
carriage is still running in cities like Mumbai, Kolkatta, and Mysore and in smaller cities of
Bihar, U.P etc to a small extent, despite its being substituted with more sophisticated and better
means of transportation.
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