The Risks of Product Line Planning

As a manufacturer, there are many important decisions that must be made when introducing new product lines and making product lines changes. Besides product development and marketing costs, most retail chains require slotting allowances regardless of whether your product is a hit or a flop. Frequently, these slotting allowances can run from $10,000 to $40,000 or more per item.

While some industry experts advise manufacturers to build the slotting fees into the cost, the competitive environment won’t permit it. Further, while some retailers may provide trial terms, under these programs the manufacturer must still agree to invest in expensive merchandising packages that may include in-store radio, newspaper advertising.

What is Strategic Product Line Planning?

Strategic product line planning involves the use of either TURF Analysis and Shapley Value Analysis, two proactive marketing research techniques that determine the best set of product combinations (ex: such as colors, flavors, scents, sizes, etc.) that minimize marketing risks (retail space limitations, stock-outs, poor visibility, etc.) and maximize the difference between items to avoid perceived similarity. These techniques provide manufacturers with answers before they invest in product development and marketing launch plans.  

Case Study 1: New Product Line Development

Smokey Forest Bratwurst is considering the introduction of a new line of low-fat bratwurst. Currently, their R&D kitchen and Marketing department are considering the recipes from 18 SKU’s to include in the new line. However, the Marketing department has a limited budget and needs to narrow the initial offering to the 3 to 5 SKU’s that offer the greatest uniqueness, highest potential for profitability and strongest consumer appeal over the entire product line.

Solution:  Our research method uses a sophisticated analytical procedure that evaluates the economic utility of each item with all possible combinations of SKU’s being considered. By using mathematical game theory, we derive scores for each SKU being considered with respect to all possible SKU’s. Once the scores are ranked, the set of SKU’s offering the highest scores represents the priority for inclusion into your best product line.

In addition to providing the brand manager with strategic decisions at the R&D stage, our Strategic Product Line Research provides a roadmap for success for the future addition of SKUs.

Case Study 2: SKU Rationalization & Product Line Management

A mid-sized manufacturer of HVAC equipment was experiencing flat sales and profitability. A small number of items in their product line contributed to the bulk of the company's unit sales and profitability. The slow movers contributed to manufacturing and supply chain inefficiencies. 

Solution:  An analytical marketing research study designed for customer focused product line rationalization was conducted by THE MARKETING ANALYSTS.  The findings from the study identified a number SKU's where customers saw little product differentiation. As a result, the manufacturer was able to reduce the number of SKUs in the product line without upsetting their customer base.  In addition to improving profitability, THE MARKETING ANALYSTS developed new product development and strategic product line management recommendations that the company adopted to prevent future product proliferation.