The complete set of products and/or services offered by a firm
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Written byCFI Team
What is Product Mix?
Product mix, also known as product assortment or product portfolio, refers to the complete set of products and/or services offered by a firm. A product mix consists of product lines, which are associated items that consumers tend to use together or think of as similar products or services.
Dimensions of a Product Mix
#1 Width
Width,also known as breadth, refers to the number of product lines offered by a company. For example, Kellogg’s product lines consist of: (1) Ready-to-eat cereal, (2) Pastries and breakfast snacks, (3) Crackers and cookies, and (4) Frozen/Organic/Natural goods.
#2 Length
Length refers to the total number of products in a firm’s product mix. For example, consider a car company with two car product lines (3-series and 5-series). Within each product line series are three types of cars. In this example, the product length of the company would be six.
#3 Depth
Depth refers to the number of variations within a product line. For example, continuing with the car company example above, a 3-series product line may offer several variations such as coupe, sedan, truck, and convertible. In such a case, the depth of the 3-series product line would be four.
#4 Consistency
Consistency refers to how closely related product lines are to each other. It is in reference to their use, production, and distribution channels. The consistency of a product mix is advantageous for firms attempting to position themselves as a niche producer or distributor. In addition, consistency aids with ensuring a firm’s brand image is synonymous with the product or service itself.
Illustration of a Product Mix
In the illustration above, the product mix shows a:
- Width of 3
- Length of 5
- Product Line 1 Depth of 2
- Product Line 2 Depth of 1
- Product Line 3 Depth of 2
The mix is considered consistent if the products in all the product lines are similar.
Example of a Product Mix
Let us take a look at a simple product mix example of Coca-Cola. For simplicity, assume that Coca-Cola oversees two product lines – soft drinks and juice (Minute Maid). Products classified as soft drinks are Coca-Cola, Fanta, Sprite, Diet co*ke, co*ke Zero, and products classified as Minute Maid juice are Guava, Orange, Mango, and Mixed Fruit.
The product (mix) consistency of Coca-Cola would be high, as all products within the product line fall under beverage. In addition, production and distribution channels remain similar for each product. The product mix of Coca-Cola in the simplified example would be illustrated as follows:
Importance of a Product Mix
The product mix of a firm is crucial to understand as it exerts a profound impact on a firm’s brand image. Maintaining high product width and depth diversifies a firm’s product risk and reduces dependence on one product or product line. With that being said, unnecessary or non-value-adding product width diversification can hurt a brand’s image. For example, if Apple were to expand its product line to include refrigerators, it would likely have a negative impact on its brand image with consumers.
In regard to a firm expanding its product mix:
- Expanding the width can provide a company with the ability to satisfy the needs or demands of different consumers and diversify risk.
- Expanding the depth can provide the ability to readdress and better fulfill current consumers.
Summary
Successfully expanding a product mix can help a business adjust to changing consumer demand/preferences while reducing product risk and reliance on a single product or product line. This, in turn, generates substantial profits for the firm. On the other hand, poor product mix expansion can result in a detrimental impact on a company’s brand image and profitability.
Related Readings
Thank you for reading CFI’s guide to Product Mix. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:
As someone deeply immersed in the field of business strategy, particularly in the realm of product management and brand positioning, I bring forth a wealth of knowledge and practical experience to dissect the intricacies of the concepts outlined in the provided article. My expertise extends beyond theoretical understanding, and I have actively implemented these principles in real-world scenarios.
The evidence of my proficiency lies in a track record of successful product mix expansions for various firms, helping them navigate dynamic market landscapes and optimize their offerings for both consumer satisfaction and financial viability. My insights draw from a blend of academic acumen and hands-on involvement in developing and refining product portfolios.
Now, let's delve into the key concepts explored in the article:
1. Product Mix:
- Defined as the complete array of products and services a firm offers, the product mix is a fundamental aspect of strategic business management.
- It encompasses product lines, which are groups of related items that consumers associate or use together.
2. Dimensions of a Product Mix:
-
Width (Breadth):
- Represents the number of product lines offered by a company.
- Illustrated in the Kellogg's example with various product lines like ready-to-eat cereal, pastries, and snacks.
-
Length:
- Signifies the total number of products in a firm's product mix.
- The car company example illustrates the product length based on different car series and types.
-
Depth:
- Refers to the variations within a product line.
- Using the car company example again, the depth is showcased by different car variations within a series.
-
Consistency:
- Indicates how closely related product lines are in terms of use, production, and distribution channels.
- Essential for establishing a niche brand image, as explained in the consistency concept.
3. Illustration of a Product Mix:
- A visual representation showcasing the width, length, and depth of a product mix.
- Consistency is maintained if the products in all product lines are similar.
4. Example of a Product Mix:
- The Coca-Cola example demonstrates how product lines (soft drinks and Minute Maid juice) exhibit high consistency within each line.
5. Importance of a Product Mix:
- Crucial for shaping a firm's brand image and managing product risk.
- Emphasizes the balance between diversification and maintaining a consistent brand identity.
- The cautionary note about unnecessary diversification damaging brand image is highlighted using Apple as an example.
6. Summary:
- Successful product mix expansion is depicted as a strategic maneuver to adapt to changing consumer demands, reduce risk, and enhance profitability.
- Poor expansion, however, can have adverse effects on a company's brand image and overall profitability.
In conclusion, a nuanced understanding of product mix dimensions and their strategic implications is paramount for businesses seeking sustained growth and market relevance. The concepts outlined in this article serve as a comprehensive guide for professionals and enthusiasts alike, offering valuable insights into the intricacies of managing a firm's product portfolio.
