Definition: Product mix is a group of products marketed by a company. It is mainly a marketing term and usually applies to the total number of products and services that comprises the company’s portfolio.
What Does Product Mix Mean?
When a firm sells only one or two products there is no application to the expression but as the number of products increases the business needs to define its product mix strategy. Certainly, a company must sell goods and services desired and properly valued by the market but it should also pursue the maximum benefit possible from its portfolio.
The analysis of factors such as market risks, economies of scale in distribution, complementary uses for the customer and production costs must be included in the decision when adding or subtracting products from the mix. Sometimes an addition is not made on purely financial elements but to diversify risk. In other cases it is convenient to eliminate products with the purpose of focusing marketing and sales efforts in the best selling items.
In this regard, every firm marketing several products has to permanently evaluate each product’s performance and its relative contribution to profits.
Example
Blanc Bags is a small firm that produces and sells women bags made from various types of leather. It has been expanding the offer with good market acceptance and higher sales. The Founder and General Manager recently hired a new Administrator who analyzed unit costs as well as contribution of each item to the company’s revenues and profits.
He alerted that eight products were not profitable at all because of high production costs. The general manager did not like the idea of eliminating those products because he thought that they were popular among customers and fitted well in the brand style.
Nevertheless, he was convinced after a deep analysis of the numbers. The firm therefore decided to take some products out and to redefine the product mix with different versions of the most profitable items.
