As we know, brands are continually exploring strategies to maintain and increase their market share. One powerful strategy is a product line extension, where a brand leverages its existing reputation and customer base to introduce new products under the same umbrella.
What is a Product Line Extension?
A ‘product line extension’ is when a company introduces a new item in the same category as its existing products. And in doing so ensures the new product capitalizes on the already established brand’s reputation and customers’ familiarity. This strategy helps businesses expand its offerings by relying upon its existing strengths.
Examples of Product Line Extensions
To illustrate, let’s consider a famous chocolate brand like Hershey’s. If Hershey’s decides to create a new flavor of their classic chocolate bar – let’s say, raspberry-filled milk chocolate – this is a product line extension. They’re broadening their product line by adding a variation to their existing chocolate bar range.
Benefits of Product Line Extensions
Product line extensions offer brands:
- Brand Recognition: An established brand’s reputation gives the new product a head start.
- Increased Sales: Product line extensions can exploit the popularity of existing products.
- Market Penetration: Businesses can introduce the new products to the same market, making the entry smoother.
- Customer Retention: Existing customers are more likely to try a new product from a brand they trust.
Product Line Extension Considerations
There are a number of key factors that are important to consider before launching a product line extension, which include:
- Consumer Acceptance: The product line extension would only be successful if it gathers the customers’ acceptance.
- Market Demand: The market should have a need or demand for the new product.
- Company Capabilities: The company must be equipped to manufacture and support the additional product.
Why Brands Use Product Line Extensions
Embracing New Markets
One primary reason is with the intention of reaching new markets. In many instances, companies already boast a successful core product. A logical next move is to extend this product line to cater to different customer groups or needs.
Realizing Economies of Scale
Cost efficiency is another driving factor for brands opting for product line extensions. Economies of scale, or proportional savings gained by increased production, is often achievable through this strategic move. Brands can use the same raw materials, production facilities, and distribution channels for the core product and its extension.
Improving Customer Retention and Loyalty
Continuous customer engagement is crucial for a brand’s success. Product line extensions often serve as effective tools for achieving higher customer retention rates. By offering an expanded array of products under the same trusted brand, customers are more likely to repeat purchases over time.
Enriching Brand Image
By broadening their product line, while maintaining the same brand name, companies can significantly help build their reputation. This reputation isn’t just about range, but it’s also about quality, which can drastically increase customer trust in the brand.
Lastly, by deploying a varied product range, brands can reach a larger segment of the market, leaving less room for their competitors to operate.
Real-life Examples of Product Line Extensions
Coca-Cola is an exemplary example when discussing line extension. This giant brand started with a single product, and now, they offer a multitude of variations from Coke Zero to Diet Coke, Cherry Coke, and even Vanilla Coke.
A toothpaste giant, Colgate, extended its toothbrush product line to include different varieties with a broad choice of battery-operated or manual toothbrushes.
Multinational tech company Amazon began as an online bookstore, it expanded its product line to include virtually everything – from household goods to electronics, clothing, even groceries, and streaming services.
Potential Risks of Product Line Extensions
Rising Product Complexity
One factor to consider is the increased complexity and cost associated with maintaining a wider product line. For instance, the larger the product line, the greater the demand for management resources, time, and finances.
Businesses must be able to afford the additional costs of production, distribution, and marketing. There’s also the increased complexity of inventory management and customer service to cater for the extended line of products.
Possibility of Cannibalization
Cannibalization is another real possibility that businesses must be cautious about when considering product line extension. If new products are too similar to existing products, instead of attracting new consumers, they might simply shift demand from one product to another within the same line.
This is frequently seen in the auto industry, where introduction of new car models may lead to decreased sales of existing models without increasing the overall customer base.
Negative Impact on the Originating Product
Additionally, a product line extension might negatively impact the sales of the initial product. This can happen, for example, when a high-end brand decides to introduce a lower-cost product in the market.
Customers could shift to the cheaper product, reducing sales and profits of the originating product. Therefore, companies should consider the likely impact of line extensions on their existing products.