Deciding the product policy is the main task in product development processes. What products should the company make? Where exactly are these products to be offered? What market, or market segment should it be offered in? What should be the relationship among the various members of a product line? What should be the width of the product mix? How many different product lines can the company accommodate? How should the products be positioned in the market? What should be the brand policy? Should there be individual brands, family brands and/or multiple brands? Can a product be left to middlemans branding? Answers to these questions will constitute the product policy of a firm.

A growing business has to undertake a constant appraisal of its existing product line. No product lasts forever, and no product lines are perfect forever. Changes in the business environment, changes in customer tastes and preferences and the extent of competition all exercise some pressure on the product policy of a firm. A product might have lost its marketable image, be facing the threat of functional obsolescence, lost its profitability, be poor in quality or simply served its purpose and is on the decline.

The techniques employed by firms to render their product or brand distinct and different from the competing brands, is termed product differentiation. Differentiation can be based on product, channel and promotion. Product, however, lends the maximum scope for differentiation. The aim of a product differentiation strategy is to endow the companys product with certain real differences compared with other competing brands. And the main requirement is that the consumers must perceive the product as different in some respect.