This company basically has twodistinct product lines. One consists of discount consumer goods and the otherconsists of high-end luxury goods. It is obvious that there is a considerableprice differential between discount consumer goods and high-end luxury goods.
Consumersthemselves are well aware of a difference in qualities and brand values ofcommodities from these two product lines.The primary advantage ofemphasizing on luxury items is it gives the company a premium image and it canconcentrate on a niche category of consumers who would not mind paying higher pricesfor premium brands. Therefore, the company need not always be on its toes tomatch with discount offers of Wal-Mart and Target. Also, it need not intentlyfocus its energies on ensuring elevated levels of inventory turnover ofdiscount consumer goods to generate sufficient total revenue for it to keepafloat.In case of premium goods thoughthere will be lesser turnover in terms of units the money value of suchturnover would be considered as each unit is highly priced. This will lead tothe 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.