Expanding a firm’s product range through product line extension is a very common strategic decision. Along with product improvements, product line extensions form the majority of new product launches for established firms.
Please note that the product line extension is just one of the main classifications of a new product.
What is a product line extension?
A product line extension is any new product brought to market that is in the same product category that the firm already produces and markets. And a product category is related set of products – such as, dairy products, computer products, furniture, motor vehicles, and so on.
The most common product line extensions that we see are often in supermarkets and convenience stores. Usually they are variations of an existing brand’s offering. Several examples would include another flavor of Mountain Dew or a variation of a Kellogg’s cereal. However, it Kellogg’s was to bring a new cereal to market that would still be classified as a product line extension, as the company already produces and markets cereal – therefore they are extending their product line.
Advantages of a product line extension
- Established and loyal customer base
- Existing expertise
- Retailer relationships
- Low cost of production
- Low cost of development
- Provides market information
- Competitive barriers
- Easy to implement
- Possible economies of scale
- Supply relationships
- Meets variety needs of consumers
Established and loyal customer base
If the company provides another variation of an established brand, then they are leveraging the existing loyalty and likeability of the brand. This means that immediate sales and profit are far more likely, as well as increasing overall customer equity and customer lifetime value.
By concentrating on the range of products that they already produce and market a company can be reassured that it has the existing expertise within the company to be successful of a product line extension.
Remaining within the same product category and simply extending the product line, the firm is likely to have established wholesaler and retailer distribution channels in place. This means that the availability of the new product should be quite wide and achieved fairly quickly and probably without the need for excessive trade promotions.
Low cost of production
As a company has existing expertise and processes in place for this category of product, then it is likely that their production costs will be relatively low – as the new product will be produced utilizing the existing systems of the company.
Low cost of development
Because the company has developed this category product before, there should be a relatively low-cost development – primarily because they have the in-house expertise and knowledge, along with the necessary IT/manufacturing capabilities.
Provides market information
By having a range of similar products (within the same product category), the company can various marketing mix offering for one of these brands/products at a time and is able to generate valuable market information by utilizing the other brands/products as a control. This allows the company to engage in more marketing experimentation and gain greater customer insights.
By having a broader range of products within the same product category, makes it more difficult for competitors to find an obvious gap in the marketplace. It would also have the impact of fragmenting the market and splitting segments into niches. This may have the effect of making it non-viable for a competitor to bring a similar product to the market.
Easy to implement
Having produced a marketed this type of product before, it is highly likely that the new product development process and marketing launch will be quite simple the company to implement. They should be able to do this easily with existing personnel and probably without the need to outsource to consultants or other specialists.
Possible economies of scale
With a broader product range, and hopefully a greater level of sales volume, it may be possible to achieve improved economies of scale – and create a lower cost structure and a higher profit unit margin.
Supplier relationships should be enhanced because the firm is likely to purchase more materials from the existing suppliers because they are manufacturing and/or producing a similar product or service.
Meets variety needs of consumers
Product line extension should also meet in with a variety needs of customers, say in a food market where variety is important – or meet the needs of a different market segment.