Product Line Decisions

Beyond decisions about individual products and services, product strategy also calls for building a product line. A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For example, Nike produces several lines of athletic shoes and apparel, and Marriott offers several lines of hotels.

The major product line decision involves product line length—the number of items in the product line. The line is too short if the manager can increase profits by adding items; the line is too long if the manager can increase profits by dropping items. Managers need to analyze their product lines periodically to assess each product item's sales and profits and to understand how each item contributes to the line's overall performance.

Product line length is influenced by company objectives and resources. For example, one objective might be to allow for upselling. Thus BMW wants to move customers up from its 3-series models to 5- and 7-series models. Another objective might be to allow cross-selling: Hewlett-Packard sells printers as well as cartridges. Still another objective might be to protect against economic swings: Inditex runs several clothing-store chains (including Zara, Bershka, and Oysho) covering different price points.

A company can expand its product line in two ways: by line filling or by line stretching. Product line filling involves adding more items within the present range of the line. There are several reasons for product line filling: reaching for extra profits, satisfying dealers, using excess capacity, being the leading full-line company, and plugging holes to keep out competitors. However, line filling is overdone if it results in cannibalization and customer confusion. The company should ensure that new items are noticeably different from existing ones.

Product line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line downward, upward, or both ways. Companies located at the upper end of the market can stretch their lines downward. A company may stretch downward to plug a market hole that otherwise would attract a new competitor or to respond to a competitor's attack on the upper end. Or it may add low-end products because it finds faster growth taking place in the low-end segments. Honda stretched downward for all of these reasons by adding its thrifty little Honda Fit to its line. The Fit, economical to drive and priced in the $12,000 to $13,000 range, met increasing consumer demands for more frugal cars and preempted competitors in the new-generation minicar segment.

Companies can also stretch their product lines upward. Sometimes, companies stretch upward in order to add prestige to their current products. Or they may be attracted by a faster growth rate or higher margins at the higher end. For example, some years ago, each of the leading Japanese auto companies introduced an upmarket automobile: Honda launched Acura; Toyota launched Lexus; and Nissan launched Infiniti. They used entirely new names rather than their own names.

Companies in the middle range of the market may decide to stretch their lines in both directions. Marriott did this with its hotel product line. Along with regular Marriott hotels, it added eight new branded hotel lines to serve both the upper and lower ends of the market. For example, Renaissance Hotels & Resorts aims to attract and please top executives; Fairfield Inn by Marriott, vacationers and business travelers on a tight travel budget; and Courtyard by Marriott, salespeople and other "road warriors."17 The major risk with this strategy is that some travelers will trade down after finding that the lower-price hotels in the Marriott chain give them pretty much everything they want. However, Marriott would rather capture its customers who move downward than lose them to competitors.

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