American Business

A B C D E F G H I J K L M N O P Q R S T U V W Y Z

2-02-2010, 18:26

Product proliferation

Product proliferation is the expansion of the number of product offerings in a product category. The cereal shelves in typical American grocery stores are an example of product proliferation. There may be 200 different boxes of cereal on the shelves, but most of the choices offer only slight variations from each other.

Product proliferation is a common market strategy in industries characterized as oligopolies, markets where there are only a few competitors. Because there are only a few firms, the actions of one firm visibly affects the wellbeing of other firms in the industry. If, for example, one firm in an industry lowers its prices, it will probably see an increase in sales, and their competitors will see sales decrease. To avoid losing customers, the other firms in the market will match the first firm’s price decrease. Likewise, if one firm in an oligopoly raises its prices, its sales will likely decrease, and the other firms’ sales will increase correspondingly. The other firms, happy to see increases in their sales, will probably not match the price increase. (This is known in economics as kinked-demand curve behavior.)

Firms in markets where there are only a few competitors recognize their actions are mutually interdependent. One option in these markets is to not compete on a price basis. Firms in oligopolies often develop price-matching policies and then compete based on other strategies including product features and offerings. The cereal industry is a classic example of nonprice competition resulting in product proliferation. In the United States, the cereal industry is a multibillion-dollar market dominated by four firms. If one firm can develop a slightly different product that increases their sales by 1 percent, it can mean millions of dollars.

Marketers have learned that product proliferation affects consumers. Overwhelmed by slightly different features and options, consumers often think they are doing a research project when deciding which product to buy. To overcome consumer confusion and frustration, “attributebased” promotion and personal selling can guide customers through product features, overcoming the problem of product proliferation.

See also mutual interdependence; pricing strategies.

Further reading

Lissy, Dana. “Helping Customers Cope with Product Proliferation,” Harvard Business Review 77, no. 3 (May 1999): 21.