Why would a company implement a "blended margin" strategy?

Implementing a "blended margin" strategy allows a company to achieve a balanced approach to profitability across different product categories. This strategy involves averaging the margins from various products to create an overall margin that can help ensure financial stability and operational efficiency. By balancing margins, a company can manage the trade-offs between high-margin and low-margin products, ensuring that the overall profitability of the business is maintained even if some product lines perform better than others.

This strategic balance can be particularly beneficial in industries where product categories have widely varying cost structures and pricing models. Companies adopting this approach can strategically price their products to remain competitive in the market while still achieving sufficient margins to support their operations. Furthermore, it enables the company to foster a diverse product portfolio, catering to different segments of the market and mitigating the risk associated with relying solely on high-margin products.