When designing a product line, a manufacturer is often aware that it does not control the ultimate targeting of the products in the line to the different consumer segments. In fact, this targeting is made by a retailer, which might only care about its own interests. The manufacturer has then to design the product line such that the retailer wants to carry the full line, i.e., both carrying the high end and the low end products. We find that the existence of a retailer makes the manufacturer increase the length of the product line in order to better segment the market. If increasing the length of the product line is not possible, the manufacturer may end up deciding to serve less consumer segments.
Retail margins end up being greater for the products in the line that have higher quality.
Failure for the manufacturer to take account of the retailer targeting strategy, results in the retailer only targeting the higher end segments.