What factors should a firm consider before dropping a product-line?

Answer 1

the firm needs to decide one thing only: is it in its best financial interest? Of course this can be separated into long term and short term best interest. Factors which need to be considered long term: is this a marketing tool?, does it draw people in who buy other products?, Does it help or hinder our long term image or reputation? What is the long run market for this product going to look like? Short run factors for consideration: Is this product profitable, and if it is not is this because of the way our Accountants have allocated fixed overhead to the product various product lines?, Is continuing this product the best available use of our resources? Is this product consuming a scarce resource which could be used to make other things? Are our production resources a sunk cost? Profitablility is the most important part of the consideration and can be "played" with. That is, some product lines will look less profitable than others based on the way the accountants have chosen to allocate the overhead. Also, if most of the production materials are sunk then it makes sense to continue producing because there is little differential cost to making additional units.