Product - Service Mix Analysis
In order to assess the product-service mix, there are two factors to be considered. One of which is the performance of offerings in similar markets and the second is the financial worth of the product-service offering.
A Manager should determine the performance of an offering in relevant markets. This places an emphasis on sales volume as it provides quantitative information regarding the performance of the offering. Additionally, the proportion of sales from the product-service offering should be considered. Businesses like Kodak for example, experience the “80-20 rule” (Kerin and Peterson 524) – this means that 80 percent of the firms’ sales are generated by 20% of the firms’ offerings. Kodak experienced this rule which made them vulnerable to shifts in the market when technological advances were made in the photography market.
Next is the market share which is how an organization can measure their performance relevant to other organizations in the marketplace. When market share is being used for control, the following questions (Kerin and Peterson 524) should be considered in order to properly assess an organizations performance in a market.
1. First, what is the market on which the market-share percentage is based, and has the market definition changed?
Market share can be accounted for in different ways such as geographic location, product type or model, customer or channel and more.
2. Is the market itself changing?
If the market is changing and there is a high market share this can be misleading due to the fact that sales can be increasing or declining. In this situation, it is best to calculate sales by unit instead of by dollars.
The second factor to be considered is the appraisal of the financial contribution. The purpose of the financial contribution is for an organization to discover whether an offering is contributing to costs – both variable costs plus the costs of goods and fixed costs. This analysis should be conducted using the contribution margin approach. Therefore, the offerings can be measured by how much they contribute to both direct and overhead costs. This analysis is used to define which offerings are operating at a loss and which offerings are in worth keeping in the product mix.