In this scenario, we have acompany that promotes two distinct product lines.
The first one promotes discountconsumer goods and the counterpart a high-end luxury goods. There is a pricing abyssbetween the two contenders. As a consumer myself, I am well aware of adifference in qualities and brand values of commodities from these two productlines.Meanwhile, the primary advantageof emphasizing on luxury items is it gives the company a premium image and itcan concentrate on a niche category of consumers who would not mind payinghigher prices for premium brands.
Therefore, the company need not always be onits toes to match with discount offers of Wal-Mart and Target. Also, it neednot intently focus its energies on ensuring elevated levels of inventoryturnover of discount consumer goods to generate sufficient total revenue for itto keep afloat.Similarly, in case of premiumgoods though there will be lesser turnover in terms of units the money value ofsuch turnover would be considered as each unit is highly priced. This will leadto the lesser physical handling of stocks and consequently lesser number ofemployees at store department.However, if the company directsits energies mainly on premium brands it would lose the benefit of selling andearning more through “Leader Pricing” of low-end goods. Whencustomers throng the store to buy products that are offered at heavy discounts(also known as “loss leaders”) they generally end up also buyingitems they need but at full retail prices even if they could get thoseelsewhere at a discount. These consumers do simply because it is moreconvenient for them to get everything under one roof instead of hopping fromone outlet to another.Also, the price elasticity ofdemand of low end, heavily discounted consumer goods is generally of inelasticnature and the company is assured of nearly steady revenue even though pricesrise to some extent.
But price elasticity of demand for premium goods isgenerally of elastic nature and the company might register significantly lessersales revenue if prices of these goods rise even slightly. Therefore, shiftingemphasis on premium goods lends an inherent volatility of the bottom-line. Therefore,I don’t think it would not be prudent to double the number of luxury goods itcarries and halve the number of discount consumer packaged goods.