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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. 6622 MARKETING MANAGEMENT Page 1 of 2 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. 6622 MARKETING MANAGEMENT Page 2 of 2 08.02 OUTLINE A. WEST