Business Knowledge

What is Product Mix? Explanation with Example

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Definition:

The product mix is the range of product lines that a company produces or manages. Product mix usually refers to length, that is, number of products within the product line; Width, that is the number of product lines that a company offers; Depth, that is, different product variants within a product line; and cohesiveness, ie the cohesiveness of the products of a product line with regard to their final destination, for example the same distribution channel. The product mix is sometimes referred to as an assortment.

Elements of the product mix

1- Product quality (BENEFICIAL BUNDLE)

  • material properties (material)
  • technology
  • quality
  • Use depth (for example table ready)
  • Ergonomics (in 70’s / 80’s)

2- Product packaging

  • Protective function (old)
  • transport function
  • Information function (old)
  • Basic utility function (new)
  • Additional benefit function (new)
  • Recycling function (carbon footprint)

3- Product Support Services

  • Service / Support
  • Guarantee (with innovation = security)
  • Advice (KD self-information)
  • Mediation (B2B contacts, maintenance)
  • Training (external, internal)

4- Product image

  • branding
  • Image transfer

Product Mix Example:

When was the last time you visited a bakery? Of course, we all know the typical product groups of a bakery! On the counter lie magazines, in the delivery the rolls, the cake, and the bread and in the background the coffee maker is buzzing. Did you ever notice why you are almost always asked when paying your fuel bill: “And, may it still be a coffee”? Why is that?

The answer is as always very simple. At the so-called gross yield 1 (= selling price – direct material use) of the respective product group. Let’s take a coffee to go! Sometimes it really tastes like running away! A little coffee + 0.2 L of water, that was it! The black mixture then costs between 2.30 € and 3.30 €, the direct use of materials is, we are generous, including cups 0.20 €. A newspaper, on the other hand, is bought by the bakery for the extension of the assortment, there the material used by the purchase is very high, with the bread or the bun people have to get up at 5 even in the morning, knead the dough etc. etc.

These 3 product groups deliver their individual gross yield to the overall result. Why are new “Starbucks” sprouting up everywhere – quite simply, they are money printing machines. But what if tomorrow was scientifically proven that coffee would lead to hair loss? No one would drink more coffee, outside of those who already have no hair left. This, in turn, would mean that a very high-margin sales segment would result in a change in the product mix. If the cost structure remains the same, the relative profit of your bakery will decrease.

Related article: Product pricing

Business Guide Blog Tip:

They do not have a bakery, but product groups with different gross yields. You can quickly determine these gross profits as part of a product profitability calculation! No? Then you should have such an income statement introduced or implemented. There is a rough rule of thumb in the manufacturing industry which states that the gross yield 1 (= turnover – material input) should be about 40% -50% across all product groups. Do you prove valuable production capacity with products that generate a very low gross profit 1? How do you control sales, sales or profitability? The introduction of such a profit and loss account creates a lot of transparency and provides valuable information for corporate management. Please ask your controller.

I drink now the nice clear mineral water, have fun with the analysis!

See also: Services and goods – characteristics and difference


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Mukhtiar Ali Khan has been working on the topic of self-employment since 2010 and would like to use the website to support other founders in the successful founding and start-up life. Through his own experience, he knows the questions and problems of other founders very well and offers together with other authors help with the creation and management of the company.

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