Product Line Length Decisions

Product line managers have to decide on product line length. Product line length is influenced by company objectives. Companies that want to be positioned as full-line companies, or that are seeking high market share and market growth, usually carry longer lines. Companies that are keen on high short-term profitability generally enrry shorter lines consisting of selected items.

Over time, product line managers tend to add new products either to use up excess manufacturing capacity, or because the sales force and distributors are calling for a more complete product line to satisfy their customers, or because the firm needs to add items to the product line to increase sales and profits.

However, as the manager adds items, several costs rise: design and engineering costs, inventory carrying costs, manufacturing changeover costs, order-processing costs, transportation costs, and promotional costs to introduce new items. Consequently, the company must plan product line growth carefully. It can systematically increase the length of its product line in two ways: by stretching its line and by filling its line. Every company's product line covers a certain range of

Poduct Line Upwardstretch
Figure 13.5

Product line-sitretching decision the products offered by the industry as a whoie. For example, BMW ears are located in the medium-high price range of the ear market. Nissan focuses on the low-to-medium price range. Product line stretching occurs when a company lengthens its product line beyond its current range. Figure 13.5 shows that the company can stretch its line downwards, upwards or both ways.

• Downward Stretch

Downward stretching occurs when a company that is located at the upper end of the market later stretches its lines downwards. The firm may have first entered the upper end to establish a quality image and intended to roll downwards later. It may be responding to an attack on the upper end by invading the low end. Or a company may add a low-end product to plug a market hole that otherwise would attract a new competitor. It may find faster growth taking place at the low end.

Xerox, for example, expanded into the small copier segment for all of these reasons. Although Xerox has long dominated the medium and large copier segments, by the late 1980s, the small copier segment was growing at a much faster rate. Canon, Sharp and other Japanese competitors had entered the low-end segment, where they quickly dominated. Moreover, these competitors used their success at the low end as a base for competing with Xerox in the mid-size copier segment. Thus, to meet shifts in the market demand and to blunt competitor thrusts, Xerox introduced a line of small copiers. Similarly, Compaq and IBM had to add less expensive personal computer lines to fend off competition from low-priced 'clones' and to take advantage of faster market growth in the lower end of the computer market.

In stretching downwards, the company faces some risks. The low-end item might provoke competitors to counteract by moving into the higher end. The company's dealers may not be willing or able to handle the lower-end products. Or the move may confuse the customer. Parker Pen introduced a cheap disposable ball point, called Itala, in 1976, in an attempt to take on the Japanese in the low end of the market. Parker had always been positioned at the top end of the market as A high-quality, high-price product (it cost more, but delivered more). The foray into the disposable pen sector was a classic n rand -confusing error. According to Mr Jacques Margry, Parker's chairman: 'By going down-market we confused the product line stretching

Increasing the product line by lengthening it beyond its current range.

With the Compact, BMW 'downward stretched' Us prnduat line to meet comjxititors head-on in the 'small-svse high-volume' car sector.

With the Compact, BMW 'downward stretched' Us prnduat line to meet comjxititors head-on in the 'small-svse high-volume' car sector.

Line Stretching Decisions

customer; the consumer no longer knew what Parker stood for. We were all over the place, dissipating the advertising.'25

A more serious problem with downward stretching is that the new low-end item might eat away at the sales of or cannibalize the company's higher-end items, leaving the company worse off. Consider the following:

General Electrics Medical Systems Division is the market leader in CAT scanners, expensive diagnostic machines used in hospitals. GE learned that a Japanese competitor was planning to attack its market. GE executives guessed that the new Japanese model would he smaller, more electronically advanced and less expensive, GE's best defence would he to introduce a similar lower-priced machine before the Japanese model entered the market. But some GE executives expressed concerns that this lower-priced version would hurt the sales and higher profit margins on their large CAT scanner. One manager finally settled the issue by saying: 'Aren't we better off to cannibalize ourselves than to let the Japanese do it?'

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Responses

  • sharon
    How product line lengthen by line filling and line streaching?
    4 years ago

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