What is product line contraction?
Due to technological improvement and changes in customer’s tastes over time, products become obsolete and unprofitable. In such a state of affairs, it is true that products do remain alive: but, in the interest of the company, it is desirable to drop them. This dropping of a product or the slimming of the product line is known as product line contraction. When a product is dropped, the turnover of the company is considerably affected. So, before embarking on a product-line contraction strategy, the firm should compare each item with that of the competitor’s and assess its relative strength or weaknesses. Specifically, it should seek an answer to questions such as the following:
Why are the products used?
Where are the products used?
When are the products used?
The answers to these questions will help the firm in not only designing an effective product line contraction strategy, but in helping it to assess its overall market position.
When should a product be dropped?
If a product is not profitable, it should be dropped. However, before dropping it, due consideration must be given to such factors as low prices and efficient promotional programme to increase its profit performance. There are certain products such as spare parts, which, by nature, are profitable but cannot be dropped because. they cater to the needs of the buyers who have already purchased the firm’s goods. Moreover, markets are heterogeneous, and each segment has its own features. Many firms find it desirable even to continue unprofitable products to promote the sale of established profitable products. As a rule, however, though subject to certain desirable expectations, unprofitable products should be dropped. A product should be dropped if it causes the sales force to divert its attention from profitable products. The products with a slow turnover should be dropped if middlemen lay stress on fast-moving products. Last but not the least, any product which does not fit logically into the basic line should be eliminated.
When to adopt product line contraction strategy?
While deciding on product line contraction, adequate attention must be given to the following facts:
- The product should not be dropped abruptly because certain products require service and replacement. So if a firm stops producing spare parts, the intermediaries may shift to competing brands which will not only grab the firm’s market, but will tarnish its image in the eyes of its customers.
- When a firm drops a product, it does not abandon the market. Therefore, a successor product must be made available well in time to maintain its market share. Timely information on product abandonment must be given to distributors, so that they may modify or design their marketing strategy for the sale of the new products.
- When the successor product is marketed, dealers must be given additional price concession to meet any loss incurred on the sale of old products.
- Adequate appraisal of the product line should be made so that the opportune time of product abandonment in the product line contraction strategy may be identified.