Page 94 - Marketing the Basics 2nd

86 Marketing: the Basics
By offering a wide variety of products under one brand, product- lining offers a low-cost, low-risk way to meet unsatisfied buyer needs. What’s more, by extending a product-line, the vendor’s bargaining power with retailers increases because the vendor accounts for a higher percentage of the retailer’s total sales. Other strategic advantages include blocking entry opportunities for competitors, raising the entry price for competitors and utilizing excess capacity. From a competitive perspective, product-filling poses a real problem. Smaller firms and foreign firms trying to break into the shelves of large retailers cannot do so because the shelves are dominated by existing competitors.
Line-filling can be detrimental to a business as well. By offering more items in a product-line, the practice could result in self-cannibalization. Self-cannibalization is the reduction in volume, revenue or market share of one product as a result of the introduction of another product by the same producer. Some analysts believe the introduction of the iPod Mini will hurt future profits at Apple.
LINE-STRETCHING
Line-stretching entails lengthening the product-line by offering products to potential customers residing upstream and/or down- stream. Firms engage in line-stretching because they are striving to become a full-line vendor, they are chasing higher margins or growth or they are doing so for tactical reasons. The aim of line- stretching is to create a product-line that meets every unmet need subject to the firm’s goals and resources.
Typically, firms engage in an upstream stretch to grab market share in higher margin/lower volume markets. Acura (Honda) and Lexus (Toyota) are two examples of middle-market car manufac- turers trying to steal market share in the premium sector of the automobile industry. In come cases, moving a product upstream creates a premium market in a product category. Coffee and ice cream were always regarded as commodity style markets, yet Starbucks and Haagen Dazs deliberately priced their product considerably higher than their competitors, choosing instead to compete on quality and experience.