Page 95 - Marketing the Basics 2nd

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A downstream stretch is employed either for growth or tactical reasons. By moving downstream a company positioned in the middle market increases its inventory turnover. This in turn utilizes excess capacity and increases the pace it takes to ride the learning curve. Moving downstream is also a defensive strategy. By moving downstream, the higher-end marketer attacks lower-end competitors in their primary markets.
Finally, a two-way stretch is where companies serving the middle market decide to stretch their product-line in both direc- tions. An example is Marriott hotels which stretched upscale with their purchase of the Ritz-Carlton chain and then downscale with three other brands, Resident Inn, Courtyard and Fairfield Inn. For example, Residence Inn targets those who are looking for a ‘home away from home’ for travellers staying five nights or more. Features include things which appeal to this segment: complimen- tary hot breakfast, evening hospitality hour, swimming pool, sport court, personalized grocery shopping, guest suites with separate living and sleeping areas, and a fully equipped kitchen.
PRODUCT-LINE PRUNING
Researchers have observed that product-lines tend to lengthen over time. Growth targets, excess capacity and the strategic importance of offering a complete range of products to satisfy all of the customer’s needs are often the reasons for expanding the product-line. While lengthening the product-line meets growth targets, adding more products also adds administrative, promotional, production, labour and research costs.
What’s more, cannibalization issues also need to be considered. Managers must routinely review the profitability of each product and prune those that are not sources of competitive advantage. In the high technology industry cannibalization often occurs when a firm announces a new product early. Microsoft and IBM have both done this in recent years; there is even a name for it, vapourware – instead of hardware and software. By pre-announcing a product before it is ready for the market the firm effectively shoots itself in the foot, because sales of its own existing products often