• Downward Stretch

• Downward Stretch

Downward stretching occurs when a company that is located at the upper end of the market later stretches its lines downwards. The firm may have first entered the upper end to establish a quality image and intended to roll downwards later. It may be responding to an attack on the upper end by invading the low end. Or a company may add a low­end product to plug a market hole that otherwise would attract a new competitor. It may find faster growth taking place at the low end.

Xerox, for example, expanded into the small copier segment for all of these reasons. Although Xerox has long dominated the medium and large copier segments, by the late 1980s, the small copier segment was growing at a much

faster rate. Canon, Sharp and other Japanese competitors had entered the low­ end segment, where they quickly dominated. Moreover, these competitors used their success at the low end as a base for competing with Xerox in the mid­size copier segment. Thus, to meet shifts in the market demand and to blunt competitor thrusts, Xerox introduced a line of small copiers. Similarly, Compaq and IBM had to add less expensive personal computer lines to fend off compe­

tition from low­priced 'clones' and to take advantage of faster market growth in the lower end of the computer market.

In stretching downwards, the company faces some risks. The low­end item might provoke competitors to counteract by moving into the higher end. The company's dealers may not be willing or able to handle the lower­end products. Or

the move may confuse the customer. Parker Pen introduced a cheap disposable ball point, called Itala, in 1976, in an attempt to take on the Japanese in the low end of the market. Parker had always been positioned at the top end of the market as 'A high­quality, high­price product (it cost more, but delivered more). The foray into the disposable pen sector was a classic n rand ­confusing error. According to Mr Jacques Margry, Parker's chairman: 'By going down­market we confused the

5'JO * Chapter 13 Brands, Produces, Packaging and Services

With the Compact, BMW 'downward stretched' Us

prnduat line to meet comjxititors head­on in the

'small­svse high­volume' car sector.

customer; the consumer no longer knew what Parker stood for. We were all over the place, dissipating the advertising.' 25

A more serious problem with downward stretching is that the new low­end item might eat away at the sales of or cannibalize the company's higher­end items, leaving the company worse off. Consider the following:

General Electrics Medical Systems Division is the market leader in CAT scanners, expensive diagnostic machines used in hospitals. GE learned that a Japanese competitor was planning to attack its market. GE executives guessed that the new Japanese model would he smaller, more electronically advanced and less expensive, GE's best defence would he to introduce a similar lower­priced machine before the Japanese model entered the market. But some GE executives expressed concerns that this lower­priced version would hurt the sales and higher profit margins on their large CAT scanner. One manager finally settled the issue by saying: 'Aren't we better off to cannibalize ourselves than to let the Japanese do it?'