Page 365 - Marketing Management

342 PART 5 SHAPING THE MARKET OFFERINGS

Using sales and cost analysis, product line managers must period-
ically review the line for deadwood that depresses profits. 37 One
study found that for a big Dutch retailer, a major assortment reduc-
tion led to a short-term drop in category sales, caused mainly by
fewer category purchases by former buyers, but it attracted new cat-
egory buyers at the same time. These new buyers partially offset the
sales losses among former buyers of the delisted items. 38
In 1999, Unilever announced its “Path to Growth” program de-
signed to get the most value from its brand portfolio by eliminating
three-quarters of its 1,600 distinct brands by 2003. 39 More than
90 percent of its profits came from just 400 brands, prompting
Unilever cochairman Niall FitzGerald to liken the brand reduction
to weeding a garden, so “the light and air get in to the blooms which
are likely to grow the best.” The company retained global brands
such as Lipton, as well as regional brands and “local jewels” like
Persil, the leading detergent in the United Kingdom.
Nike’s classic Air Force 1 sneaker
Multibrand companies all over the world try to optimize their brand portfolios. This often
has been refreshed time and time
means focusing on core brand growth and concentrating resources on the biggest and most es-
again over the years, as these
tablished brands. Hasbro has designated a set of core toy brands, including GI Joe,
25th-anniversary models show.
Transformers, and My Little Pony, to emphasize in its marketing. Procter & Gamble’s “back to
basics strategy” concentrated on brands with over $1 billion in revenue, such as Tide, Crest,
Pampers, and Pringles. Every product in a product line must play a role, as must any brand in
the brand portfolio.

Volkswagen Volkswagen Volkswagen has four different core brands of particular impor-
tance in its European portfolio. Initially, Audi and Seat had a sporty image and VW and
Skoda had a family-car image. Audi and VW were in a higher price-quality tier than Skoda
and Seat, which had spartan interiors and utilitarian engine performance. To reduce costs,
streamline part/systems designs, and eliminate redundancies, Volkswagen upgraded the
Seat and Skoda brands, which captured market share with splashy interiors, a full array of safety sys-
tems, and reliable power trains. The danger, of course, is that by borrowing from its upper-echelon
Audi and Volkswagen products, Volkswagen could dilute their cachet. Frugal European consumers
may convince themselves that a Seat or Skoda is almost identical to its VW sister, at several thousand
euros less. 40

Product Mix Pricing
Marketers must modify their price-setting logic when the product is part of a product mix. In
product mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.
Pricing is difficult because the various products have demand and cost interrelationships and are
subject to different degrees of competition. We can distinguish six situations calling for product-
mix pricing: product line pricing, optional-feature pricing, captive-product pricing, two-part pric-
ing, by-product pricing, and product-bundling pricing.

PRODUCT LINE PRICING Companies normally develop product lines rather than single
products and introduce price steps. A men’s clothing store might carry men’s suits at three price
levels: $300, $600, and $900, which customers associate with low-, average-, and high-quality. The
seller’s task is to establish perceived quality differences that justify the price differences. 41

OPTIONAL-FEATURE PRICING Many companies offer optional products, features, and
services with their main product. A buyer of the 2010 Subaru Outback 2.5i can order four-way
power passenger seats, an All-Weather package, and a power moon roof as optional features.
Pricing options is a sticky problem, because companies must decide which to include in the
standard price and which to offer separately. Many restaurants price their beverages high and their
food low. The food revenue covers costs, and the beverages—especially liquor—produce the profit.