Download 8.02 Content Outline

MMGT
OBJECTIVE 08.02
PRODUCT ASSORTMENTS
OUTLINE
A. WEST
4/29/2017
A. Summarize concepts related to product mix.
1. Product item: A specific version, model, brand, or size of a product. Example:
Diet Coke with Lime
2. Product line: A group of items that are sold together because of marketing,
technical, or end-use considerations. Example: Diet Coke, Diet Coke with
Splenda, Diet Coke with Lime, Diet Coke with Lemon.
3. Product assortment (mix): The total of all products a business offers to a
market. Example: The soft drink mix at a local store includes Coke products,
Pepsi products, and private store brand drinks.
a. Product width (breadth): The number of different product lines a business
manufactures or sells. Example: A retailer carries Levi, Lee, and Guess
brands in jeans, thus the product width is three.
(1) Broad assortment: A product assortment that includes many product
lines.
(2) Narrow assortment: A product assortment offering a limited number
of product lines.
b. Product depth: The number of items offered within each product line.
Example: The jeans retailer above offers many sizes, colors, styles,
fabrics, and price ranges for each of the three brands of jeans.
(1) Deep assortment: A product assortment offering many product items
within the product line.
(2) Shallow assortment: A product assortment offering a limited number
of product items within the product line.
4. Product modification: An alteration in a company’s existing product.
Examples: Vanilla Coke and No Late Fees at Blockbuster
5. Product or line deletion: A company decision to no longer carry a product or
even an entire product line. Example: Coke removing the product Surge from
its product mix or assortment. Decisions can be based on the following:
a. Obsolescence – Changes in consumer preferences and/or changes in
technology. Example: CD’s are replacing music albums on tape, DVD’s
are replacing movies on VHS, and plasma and High Definition TV’s are
replacing older TV models.
b. Loss of appeal – Consumers tastes are constantly in a state of flux. As
these change, businesses must decide if product loyalty is worth the cost of
dwindling sales and profits.
c. Company objective changes – Just as consumer tastes and preferences
are in constant movement, companies too must evaluate objectives and
align products with those objectives. Example: A company may choose to
sell off non-related subsidiaries or streamline its product mix in order to
focus on those products which match current objectives.
d. Product replacement – As consumer tastes and preferences change, new
and improved products will be introduced to the market. Manufacturers pay
slotting fees (sometimes called new product introduction fees or product
placement fees) to get retailers to place these new products on the store
shelves. To a retailer, the opportunity cost associated with the use of shelf
space is a big factor. Every product replaces another on the shelves.
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08.02 OUTLINE
A. WEST
MMGT
OBJECTIVE 08.02
PRODUCT ASSORTMENTS
OUTLINE
A. WEST
4/29/2017
Every placement of a new product means less space (or no space at all) for
an older product. Many new products introduced to the market fail. With a
new product, there is a risk that many cases of a “failed” product may have
to be sold at a big loss. The retailer may have lost not only the income from
the new product, but also the income that might have resulted from
retaining the older product. Slotting fees help to cover some of these
losses should they occur.
e. Lack of profit – If a company’s profits fall below a certain level, the
company may choose to remove that product from its assortment.
f. Product conflict in product line – There are times when one product’s
sales takes away sales from another product in the same product line. A
company may choose to remove one of these products to reduce the
conflict and stabilize sales. Examples: Surge taking away sales of Mello
Yello or Coke Zero taking away sales from Diet Coke
6. Product development: The process of creating or improving a product or
service.
B. Summarize the steps in new product development.
1. Idea generation. New product ideas may come from research and
development, customers, employees, competitors, distributors, suppliers, or
other sources.
2. Idea screening. To reduce costs and focus on ideas with merit, developers
eliminate those ideas obtained that do not have the potential to be successful.
3. Concept development and testing. A detailed description of the potential
product is presented to probable buyers/customers in terms that are
understandable and meaningful to the consumer to gain their reaction to the
product and to measure its customer appeal.
4. Marketing strategy development. An initial marketing strategy is designed to
outline the target market, the planned product positioning, the sales, market
share, and profit goals for the first year in the life of the product.
5. Business analysis. Sales, costs, and profit projections are reviewed to
determine the feasibility of the continued development of the product idea.
6. Product development. A prototype is created to make sure the idea can be
successfully moved from descriptions and drawings to a workable product.
This stage requires the combined efforts of product engineering, research and
development, and marketing to make the best decisions.
7. Test marketing. The new product and its marketing program are introduced to
the public in selected geographical areas to test product acceptance in
authentic markets.
8. Commercialization. Plans for full-scale production and marketing are
implemented. The product is actually placed in the competitive marketplace.
Fine-tuning in the production, quality control, distribution, and marketing of the
product continues.
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08.02 OUTLINE
A. WEST