Investigating Firm Performance Link with Product Line Length and Breadth

The introduction of completely new products and new versions and variations of a firm’s old products enables firms to respond to increasingly heterogeneous customer needs, the intensified speed of technological development, and changing competitive conditions, making the strategy of increasing product variety a highly popular one. However, simply increasing product variety, that is, lengthening or broadening the firm’s product line, does not always lead to better performance in the market, and might instead have detrimental effects on the firm’s performance. Changes in the competitive intensity of the industry and other contingencies also influence the profitability and performance of different product line strategies.

This dissertation’s objectives were to analyze the relationship between product line length and firm performance and product line breadth and firm performance and investigate the effects of competitive intensity on both of these relationships. The study distinguishes between product line length (i.e., the number of product variants in a product line) and breadth (the number of product lines a firm offers in a given industry submarket) and examines both constructs and their performance implications separately within the context of the global digital camera industry.

The quantitative analyses were conducted on a dataset of 2,033 new product introductions by digital camera manufacturers during the period 1999–2017. The performance of the firms was analyzed for the market as a whole and for three different product categories separately by utilizing a novel firm performance measure in the field of product line research: online customer evaluations. Partially consistent with previous research, the study found an inverted U-shaped relationship between product line length and firm performance in the digital camera market as a whole and in the compact product category. However, the U-shape only applied to firms operating with very short product lines, and for a vast majority of firms, the study recognized a negative linear relationship between product line length and firm performance. In terms of breadth, the results contradict the prevailing hypothesis of a U-shaped relationship, instead finding a negative linear one in the market as a whole and in the compact category in particular. Competitive intensity seems to strengthen the impact. No effect was detected for the bridge and SLR categories for either of the variables.

The findings indicate that environmental dynamics and other characteristics of product categories play an important role in determining the profitability of a product line strategy and whether active product line strategies are recommendable to cope with competition in the category. Studies on the topic have commonly analyzed an entire submarket as a homogeneous set of customers, products, and firms, not distinguishing between different categories within the submarket. This study questions the generalizability and applicability of one product strategy to an entire market, and recommends more detailed analysis of separate product categories to support decision making. Future research should analyze both product line length and breadth together and investigate further the potential differences between product categories in terms of product line strategy performance. The relationship between product line breadth and firm performance also merits further research.