A company’s product mix refers to the total number of product lines and items that the company offers to its target market. The product mix is one of the most important elements of a company’s marketing strategy and can greatly impact the success and profitability of the business. By effectively managing its product mix, a company can better meet customer needs, exploit emerging opportunities, and improve its competitive position in the marketplace.
What is product mix?
The product mix, also known as product assortment, is the combination of products and services that a company offers to its target market. It encompasses the breadth, depth, consistency, and quality of the company’s product lines and individual offerings. The product mix consists of the following key dimensions:
- Product width – the total number of different product lines/categories
- Product length – the total number of items in each product line
- Product depth – the number of variants offered of each product by size, flavor etc.
- Product consistency – how closely related product lines are in end use or production process
For example, a smartphone company like Apple has a product mix consisting of various lines like iPhone, iPad, MacBook, Apple Watch etc. The iPhone line has a length of different models like iPhone 14, iPhone 14 Pro, iPhone SE etc. Each model is available in different colors and memory sizes adding depth to the product line. Overall, Apple’s product mix has width across categories, length within each line, depth of variants and consistency in its tech focus.
Importance of product mix
The product mix is a critical strategic tool for businesses because it provides the following benefits:
- Meet customer needs – A wider product mix allows a company to satisfy more needs and preferences of customers across various segments.
- Enhance profitability – An optimized product mix can improve profit margins by achieving ideal distribution across high and low contribution products.
- Gain competitive advantage – A differentiated product mix builds brand recognition and makes it tougher for competitors to replicate.
- Drive growth – Introducing new product lines and expanding existing ones allows a company to access new markets and revenue streams.
- Manage risk – Diversifying into multiple product lines minimizes risk and makes the company less vulnerable to demand fluctuations.
In essence, the product mix provides strategic leverage to address growth, profits and competition. Companies with strong product mix management are better equipped to thrive in dynamic market conditions.
Factors influencing product mix
Developing and managing an optimal product mix depends on properly assessing and balancing several internal and external factors:
- Company objectives – Product mix decisions must align with the company’s overall mission, vision, targets and strategic priorities.
- Target customers – Customer demographics, psychographics, buying behaviors and unmet needs dictate the type of products to include.
- Competitive landscape – The product mix should help create a distinct brand image and unique value proposition versus competitors.
- Resources and capabilities – Existing human resources, manufacturing capacities, distribution infrastructure and technology constraints impact feasible product mix options.
- Product life cycle – Products at different life cycle stages like introduction, growth, maturity and decline necessitate different mix strategies.
- Cannibalization – Adding products that take market share from existing products should be avoided unless strategically intended.
- Synergy – Seeking product mix synergy by extending brands and bundling related products together provides advantage.
- Regulations – Government regulations, safety standards and legal requirements may restrict certain product-market entries.
Finding the optimal balance between these factors is crucial for developing the ideal product mix for any given company and its situation.
Product mix expansion strategies
Companies can adopt various product mix expansion strategies to fuel growth and capture additional market share. Some key strategies include:
- Line extension – Introducing new variants in existing product lines e.g. new flavors, sizes, models.
- Brand extension – Using an established brand name to enter new product categories e.g. Courtyard by Marriott.
- New product lines – Adding completely new product lines to serve unmet customer needs e.g. smartphones for computer companies.
- Diversification – Entering new businesses distinct from current product mix to spread and mitigate risk e.g. conglomerates.
- Acquisitions – Buying companies to quickly obtain new capabilities, brands and product lines.
- Global expansion – Extending product mix by entering international markets and adapting products to local needs.
These strategies allow companies to effectively leverage their existing product portfolio strength while fueling new sources of growth and diversification.
Optimizing product mix using product hierarchy
Businesses can optimize their product mix using a product hierarchy system. This involves classifying products into different groups based on sales volume and contribution margin. A typical product hierarchy is as follows:
- Stars – High growth products with large market share and high margins.
- Cash Cows – Low growth but high share products delivering surplus cash.
- Question Marks – High growth but low share products needing investment.
- Dogs – Low growth and low share products generating weak returns.
This product portfolio matrix helps direct mix strategies towards:
- Investing to build Question Marks into Stars
- Maintaining Stars and Cash Cows for profits
- Limiting Dogs or repurposing the assets
Companies take different approaches based on their overall corporate strategy. For example, growth-oriented firms focus more on Question Marks while mature firms emphasize their Cash Cows.
Designing an optimal product mix
Designing an optimal product mix involves following a systematic process:
1. Conduct market analysis
Analyze customer demographics and buying criteria. Assess market trends, growth drivers and competitor offerings.
2. Set product mix objectives
Define goals for the product mix aligned to company strategy e.g. profitability, market share, growth etc.
3. Develop product mix proposals
Generate proposed product mix options through brainstorming and portfolio analysis techniques.
4. Evaluate proposals
Assess financial, marketing and operational feasibility of proposed product mix options.
5. Optimize mix
Select product options that optimally balance objectives, trade-offs and constraints.
6. Implement mix
Develop launch plans and allocate resources to deliver the new product mix.
7. Review and control
Monitor performance metrics and refine mix periodically to keep aligned with internal and external changes.
This structured approach ensures that the product mix evolves optimally over time for the company’s situation and priorities.
Role of product mix in marketing strategies
The product mix plays a vital role in the following marketing strategies and activities of a company:
- Segmentation – Defining specific product lines for each customer segment’s preferences.
- Targeting – Selecting which segments to serve with tailored product collection.
- Positioning – Creating a brand image through breadth and depth of mix.
- Differentiation – Offering unique products and features versus competitors.
- Pricing – Assigning prices aligned to product cost and perceived value.
- Promotion – Devising integrated campaigns for the product portfolio.
- Distribution – Delivering varied products to appropriate retail outlets.
- Partnerships – Co-branding or licensing products to complement the mix.
The product mix enables firms to execute precise marketing programs to influence customer purchase decisions across multiple products and markets.
Product mix pricing strategies
Companies can leverage their product mix to employ effective pricing strategies such as:
- Differential pricing – Pricing different products based on costs, competitive factors, demand etc.
- Versioning – Offering product versions at varying price points to target premium and budget customer segments.
- Bundling – Selling groups of products together at discounted bundle prices.
- Price lining – Using specific price points consistently across products.
- Penetration pricing – Initially pricing high volume staple products low to gain market share.
- Skimming – Setting high prices for niche, premium products and gradually lowering price.
- Psychological pricing – Ending prices with an odd number like 9 to signal value.
Leveraging pricing tactics across its product portfolio allows a company to maximize both profitability and customer value.
Using product mix to gain competitive advantage
Companies can gain a sustainable competitive edge through their product mix using strategies like:
- Offering the widest range of products to become the one-stop shop in the industry.
- Pursuing exclusive products through patents, licenses and proprietary development.
- Maintaining superior quality and performance through R&D and testing.
- Emphasizing product innovation by continually introducing new value-adding features and benefits.
- Providing exceptional customization and personalization to individual customer specifications.
- Leveraging brand equity by launching line extensions and brand extensions.
Distinctive capabilities in product mix management make it hard for competitors to emulate and create strong customer loyalty.
Aligning product mix with supply chain strategy
It is vital to align the product mix decisions with supply chain capabilities to ensure effective execution. Key considerations include:
- Sourcing flexibility for new components, materials and technologies.
- Manufacturing capacity and production economics for different product runs.
- Inventory planning for wider product variety and slower moving items.
- Distribution agility to deliver diverse products to multiple locations.
- Supplier collaboration and vendor managed inventory (VMI) for coordination.
- Forecasting complexity with multiple demand streams to plan.
A mismatch between product mix and supply chain design will make it difficult to deliver the desired assortment efficiently to customers.
Impact of product mix on organizational structure
The product mix also influences the optimal organizational structure for a company. Key factors include:
- Divisional structure – Separate business units by product lines for more focus.
- Matrix structure – Shared resources across business units working on different products.
- Specialized functions – Dedicated teams for complex activities like R&D across mixed portfolio.
- Coordinators – Managing consistency and leveraging synergies across diverse products.
- Inter-divisional teams – Cross-collaboration between groups handling related products and technologies.
The right structure provides the coordination required to manage a vast, evolving product portfolio.
Challenges in product mix management
Some key challenges faced by companies in product mix management include:
- Predicting profit potential for new unproven products.
- Cannibalizing existing products with new product additions.
- Determining the optimal product range breadth, length and depth.
- Justifying expansion or diversification investments and risks.
- Overcoming internal resistance and getting buy-in across departments.
- Maintaining production and inventory economies with growing product variety.
- Preventing brand dilution by over-extending product lines.
- Coordinating pricing, feature and branding consistency across the mix.
- Monitoring complex market dynamics across multiple product categories.
Robust analysis frameworks, cross-functional engagement, continuous review and controlled experimentation help address these challenges.
A company’s product mix encompasses the total assortment of products and services it offers to the marketplace. An optimized product mix is carefully designed to help meet customer needs, achieve growth and competitive advantage, while aligning with organizational objectives and constraints. Companies can employ numerous strategies to expand their product mix such as line extensions, diversification and acquisitions. The product mix plays a pivotal role in shaping marketing strategies, pricing tactics, supply chain capabilities and organizational structure. By taking a strategic approach to managing their product portfolio, companies can succeed and prosper even in the most turbulent market conditions.