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company‘s manufacturing resources. This also spreads the company‘s overheads over a much larger product base lowering the costs and enhancing profits. c. Product line filling is done many times to satisfy the company‘s dealers who are constantly asking for newer products. Since developing a completely new product is much more expensive as compared to modifying an existing product and creating its variant. 55 d. It also helps the company to give the customer an impression that its range of products is complete and comprehensive. This is good for the overall image of the company. e. It also helps in keeping out competitors from different segments. It is not that competition can now not enter such segments but it makes it that much harder and expensive for a new entrant to enter the market. iii. Product line modernisation Product Line Modernisation involves a complete overhaul of the product lines. Here the company undertakes the complete overhaul of the product line and not by either product stretching or by product filling. This type of overhaul allows the company to take a comprehensive view of the customers‘, markets, competitor‘s perspectives before undertaking this change. This type of overhaul is not usual and is seldom undertaken. It may be done if the company passes through an economic crisis or bankruptcy. 4.3. Product Contribution Every product in a Product Line makes a contribution to its sale and profit. Some make a greater contribution to the sales and some to the profit. For a company to modify, add or delete a product in the product line they must analyse how the product is performing in terms of sales and profit. Is it contributing a sufficient amount to be retained or is it fulfilling some business objective for it to be retained or dropped. This analysis is done by evaluating the contribution margin of a product – higher the contribution margin is [the lower variable costs are as a percentage of total costs], faster the profits increase with sales. The Contribution margin analysis allows an analysis of how growth in sales will translate into growth in profits. This is also called an operating leverage and measures how risky [volatile] a company's operating income is to changes in market conditions. Contribution margin is calculated as the product's price minus its total variable costs. This allows a manager to evaluate what will be the breakeven point in terms of sales for a particular product. Knowing the breakeven point he is in a position to target the sales he desires – one that will help him meet his business goals //en.wikipedia.org/wiki/Operating_leverage 56 in terms of profits and recoveries of the development costs. It also helps the manager plan his selling schemes better by knowing to what extent he will be able to reward his channel partners and sales team by way of commissions and incentives. So let us look at a situation in which a business manager calculates that a particular product has a 30% contribution margin, which is below that of other products in the company's product line. This figure can then be used to determine whether variable costs for that product can be reduced, or if the price of the end product could be increased. If these options are not possible, the manager may decide to drop the unprofitable product in order to introduce an alternate product with a higher contribution margin. This analysis may be done on an individual basis and also on a cumulative basis to understand its past and present behaviour. It can then be used to predict the possible future of the product. 5. Summary The product forms an important part of the marketing mix. A company needs to have several products in order to serve the complete range of customers. The set of products that the company has in its armoury is called the product mix. This product mix may consist of various product lines or individual products. The more numbers of lines and products a company has the wider is said to be its product mix. A product line is a set of products that are linked to each other since they tend to address similar customers. A product line may have depth that means a number of products at various price points. Several product decisions need to be taken in terms of withdrawal or introduction of a product. Important considerations must be kept in mind whether withdrawing or introducing products. Products can be increased above below or at the same level of existing products. Another important consideration for taking product decisions is the contribution margin which helps in deciding whether the product will meet the sales and profitability objectives of the company. 6. Your learning 1. What is a product mix? Why is it needed by an organisation? 57 2. Why do we need to take considered decisions while withdrawing products? 3. Stretching a product line downwards has some limitations in managing the image of the brand. Why is it so and what should you do to avoid this? 4. How do we link business objectives to product decisions? 7. Key Words 1. Catastrophic failure – A catastrophic failure is a sudden and total failure of some system from which recovery is impossible 2. Revolve around – to be the focus of something of to be centered on something - Her entire attention centered on her children; Our day revolved around our work 3. Diverse marketing mix – A wide range in the marketing mix 4. Large cross-section – A cross section is a sample meant to be representative of a whole population something that shows the variety of the population. So a Large cross section represents a wide range. 5. In build – Something that is inbuilt or inherent in the product. Some property or quality that is built into the product at the time of designing it. 6. Price spectrum – The range of prices for a product line from the lowest priced product in the line to the highest priced product give the price spectrum of the product line. 7. Eat into sales – Means that a new product will take away the sales that was happening for an existing product when another one is introduced above or below it by customers who wanted a cheaper of more expensive product. 8. Mould the loyalty – To modify the loyalty of the customers in such a manner that it suits the requirements of the company 58 8. Exercises 1. How does filling a product line help the company retain customers? 2. Why do companies think of line extensions or product withdrawals and not go in for Product line modernisation? 3. If the company withdraws a product is it necessary for it to have another product to fill its place? If yes why and if no why not? 4. Why must a company analyse the line vulnerability? What would happen if they were not to undertake such an analysis? 9. Further Reading 1. Lehmann, Donald R and Winer, Russel S, [2005] Product Management, New Delhi, India, Tata McGraw-Hill Page 257 - 280 2. Majumdar, R, [1998], Product Management in India, New Delhi, India, Prentice Hall of India, Page 29-39, 66-71 3. Lehmann, Donald R and Winer, Russel S, [1997] Product Management, Singapore, Irwin/ McGraw-Hill Page 244-250, 263 – 269 4. Kotler, Philip, [1999], Marketing Management, New Delhi, India, Prentice Hall of India, page 399-404 59 16. UNIT – V Product Life Cycle 17. Learning Objectives To understand Product Life Cycle [PLC] The various types of PLC To understand what how different stages of PLC affect strategy. To understand the difference between Industry PLC and individual product PLC Structure 1. Introduction 2. Basics of Product Life Cycle [PLC] 3. Types of Customers at different stages 4. Strategy at different stages of the PLC 5. Application of the PLC 6. Limitations of the PLC 7. Summary