In this article we will discuss about the concept of product mix and the factors influencing it.
Concept of Product Mix:
Product mix refers to the depth and width of product policy of a company. It is concerned with product diversity, i.e. how far a company can or should diversify its products. It is defined as “the composite of products offered for sale by a firm or a business unit.” The ‘depth’ of product policy refers to the various models, designs, sizes, and colours whereas ‘width’ involves number of product lines.
For example, a variety of electrical appliances such as fans, lamps, etc. produced and marketed by Bajaj Electricals is the width of its product policy.
The product mix of a reputed electrical firm, Asea Brown Boveri Ltd., may be illustrated in the following diagram:
Factors Influencing Product Mix:
In addition, Asea Brown Boveri Ltd. is engaged in the manufacture and marketing of other systems in the areas of weighing, instrumentation, automation, railway signalling products, steam turbines, etc.
Thus, product mix as the policy of ABB Ltd. shows that a company will have multiple product and not confine to a single product. So, the question arises how should product policy be formulated? What factors should be considered?
The following factors are generally considered before deciding on product mix:
(1) Marketing strategy and corporate strategy. Does a product fit these strategy.
(2) Resources and strengths of a company. Does the product fit them?
(3) Competitor’s strategy. Does the product match the competitor s strategy?
(4) Overall impact of profit. Does the product improve the profit of the company?
(5) Effect on other products. Does the product adversely affect the sales of other products?
(6) Management competence. Does the product get the necessary management competence and experience?
(7) Cost of production. Can a by-product or other allied systems or products be developed at a low cost of production?
(8) Quantity of production. Does the addition of one more item to the existing product line offer economics of large scale production?
(9) Full utilisation of marketing network. Does the addition of a product contribute towards reducing the marketing cost by fuller utilisation of marketing personnel?
Generally marketing scholars oppose ‘conglomerate business’ (that is, a company having unrelated products say, cement, textiles, glass, computers, and T.V.). If a company spends its limited resources and strengths on too many unrelated products it cannot achieve excellence because it will dissipate then on all sorts of products but if it confines to a few related products it will achieve success.
General Electric Company is confined to electrical goods, I.B.M. to computers, and Ford to automobiles only. Similarly Phillips until recently was restricted to electric lighting, but, of late, it has entered video cassette recorder, T.V. and computers.
It is a moot question whether it will achieve long-term success because though there is sate relationship between all these, there is also sane difference in product positioning which is very essential for marketing success. There must be what is called a ‘common thread’ of technology among the company’s product in order to achieve product leadership or distinctiveness.
On the other hand, if a company confines to only one product, although it may achieve excellence since it concentrates its resources and strengths on a single product, it will face adverse situation later on when competitors introduce new products which compete with the company’s product. Moreover, the market demand for a single product may collapse suddenly because of change of consumer perception.
The product mix strategy most include product obsolescence (that is, certain products become obsolete due to aging or changing consumer behaviour or changing technology. Such products have to be dropped as soon as possible because while they consume resources they do not yield good profits.
Each product must be profitable. Hence before introducing a new product it is desirable to drop the obsolete product and thus divert resources and deploy than in profitable products instead of introducing a new product and later on dropping an unprofitable item.
The need for continuous review of product mix arises due to changes in the external environment such as technology, consumer perception, competition, population and economic structure. The very survival of a company depends on how well this review task is undertaken and new products are adopted. As Stanton says, product mix necessarily involves ‘product differentiation’ and ‘planned obsolescence’.
The latter involves physical obsolescence or functional obsolescence or style obsolescence.
Planned obsolescence involves further not merely determining present profitability but also cutting down all costs, improving the functions of the product and improving the marketing plan and dropping the product itself and above all matching the resources and strengths of the company effectively and focussing on long-term profits. Hence, the key factor is ‘strategic choice’.
According to Kotler, product mix strategy must be examined as a part of diversification strategy. He advocates related business and concentric strategy whereby the company focuses on a few related products to achieve long-term success and opposes conglomerate business.
Thus, Hindustan Machine Tools has diversified into unrelated business electric bulb, watches, and ball-bearing though it was started as a machine tool company. It also added tractor and printing press.
According to latest reports, H.M.T.’s profit and market share are declining because none of the products including watches are able to compete with the products of competitors. Product positioning and economies of scale are adversely affected by such conglomerate business.
Diversification and simplification, which are very important aspects, of product mix, should be followed with analysis, judgement, vision and far-sightedness in a competitive environment. The methods of diversification have an effect on product mix.
Finally, as Kotler observes, product mix must be considered as a primary factor for success as wrong mix leads to waste of resources and even collapse to the company in course of time.
There is a tendency in India to resort to heavy advertisement and sales promotion although the product mix is not good. If the products are of good quality and after sales service are good, advertising and promotion on a small scale work wonders.
Product mix, therefore, is considered as an integral part of marketing mix (i.e. right product, right price, right promotion, and right place or distribution).
According to Davar, product mix must be considered as a part of overall marketing planning so that resources are better utilised, all costs are pruned, existing products are improved, obsolete products are dropped, competitors’ policies and industry trend are taken note of, and the marketing strategy is reviewed to ensure that the company’s resources match with the environmental changes.
Market share, growth, and corporate image must be examined. All these need innovation strategy.