Written by Judy Li, Jan 18, 2021
As a general business owner, you want to surprise your customers and maximize sales revenue by launching new products. In the meantime, there are several questions you have to go through before introducing new products – What is the product? What is the price range? What is the targeted market segment? Who are the major competitors?
A more organized way to accomplish these larger brand goals is through a product line extension and brand extension. We will look into how they work and what their differences are. This will help to spark some ideas regarding product innovation.
A product line is a group of products that are closely related due to the similarity of their functions. Often, they are sold to the same segment of customer groups and are marketed through the same types of outlets or fall within given price ranges.
A line extension is defined as the emergence of a new variant of an existing product that competes in the same category.
After answering the questions, “What is a product line?” and “What is a line extension?”, we can deduce that a product line extension is when a company creates a new product in the same product line of an existing brand. The company lengthens its product line beyond its current range. The new products are launched in the same product line but with some additional or different features.
To better understand the concept below, we must look at some examples in different industries which demonstrate line extensions.
For example, a fast-food restaurant originally offers a deep-fried chicken and lettuce hamburger combo. The owner understands that the external business environment is dynamic and everchanging. We are becoming more health conscious. By the time we stop by the fast-food restaurant, we might hesitate and then decide against eating there because the food is too unhealthy to consume.
However, what if the owner spots this fear? The strategy for an extension can be a different volume of ingredients, different flavors and different qualities. A new hamburger flavor is introduced – A pan-fried chicken hamburger with 50% more lettuce. I bet we will feel less guilty to consume this newly launched hamburger.
When it comes to the cosmetic industry, many of us might associate it directly to color cosmetics such as foundation, mascara, eyeliner and lipstick. However, let’s take a step further. The cosmetic industry includes skincare products such as cleansers and moisturizers.
For example, a beauty company wants to capture a greater market audience by providing a wider coverage of cleansing products. Originally, the existing cleansing product might merely perform these functions in general – removing dead skin cells, oil and dirt from the skin of the face. However, once the company realizes the variation in skin types among individuals, a product line extension applies – cleansing products for normal, sensitive, dry, oily, combination, acne-prone skin.
In this era of digital advancement, it is not uncommon to see different models of the same series. A case in point is the iPhone 12 Pro Max, iPhone 12 Pro, iPhone 12 and iPhone 12 mini. Compared to the iPhone 12 mini, the iPhone 12 Pro has a larger retina XDR display and optical zoom range up to 4x.
Although they are within the same product line, different models are specialized for customers with different needs. For example, professional iPhone photographer who pursue a higher quality of camera resolution. For ladies, a palm sized smartphone might be a better choice. These product line extension examples illustrate how product line extensions work in various industries.
At the beginning of a product line extension, a company has to fund research and development generated by current products. After conducting market research to locate the customers’ need, it has to design and brainstorm for the framework of the new product and then carry out test-runs to verify its practicability and responsiveness in the target market.
At this stage, the new product is launched to the market by developing product awareness and gaining exposure to the public. Hence, this is marked as the beginning of the product line extension cycle. As a result, a high advertising expenditure is associated.
After the introduction stage, here comes the ‘Growth’ stage. Throughout this stage, the product is expected to gain acceptance by customers. The company aims for a higher level of product achievement by expanding market share.
During the maturity stage, the market achieves saturation. We can see that from the level off in sales revenue. By that time, the new product may face competition from other similar product providers. Often, the company reforms and reshapes the new product by introducing additional features.
The decline stage of the product line extension cycle can be deduced from the declining sales revenue. There are many underlying factors behind it. For example, everchanging customer demand, fierce and high rivalry among competitors and so on.
At this stage, the company can either opt to decline the product, or sell the franchise to another business to continue operating the product. Alternatively, it can choose to continue introducing new features to the product, but it might not be as effective as before because the market has reached saturation already.
A brand extension, or brand stretching, is when a company uses an existing brand to create new product categories. Meanwhile, the company can extend its brand with recognition from the existing famous products.
Brand extension involves the use of an existing brand to launch and promote new products, which are categorized into a different product line from the existing one. For example, a watch-manufacturing company originally owns one mainstream line of product only – watches. Under a brand extension, it expands into a new product category – clocks. Because clocks are significantly different yet somehow related to watches, the company can make good use of the brand equity and enter a new market niche.
Alternatively, it is called category extension. In other words, it is a strategy in which the company enters a completely unrelated product market by utilizing the same product it has.
A brand line extension is when a company utilizes its existing brand name to introduce a slightly different product in the same product category. The company not only widens the product line, it also gains exposure by reaching out to more potential customers. This likely results in greater marketing efficiency and larger market shares.
Among all types of brand extension, companion product extension occurs the most naturally. Companion products are classified as the complements of the existing product line. Customers may purchase both of them at the same time or jointly use them together. For instance, printers and printer inks, coffee machines and coffee beans, smartphones and phone cases. Under companion product extension, a company does not need to spend too much research & development resources because it extends the original scope of product and they are of similar nature in general.
To be one of the dominating firms in the industry, a company usually possesses a particular expertise. Brand expertise extension refers to the strategy in which the company leverages its expertise to open up a new product line. For example, a company which specializes in producing air fragrance sprays. It has its unique formula in manufacturing those sprays. It might extend to a new product line – air freshener spray for car. This can be one example of brand expertise extension.
In a franchise extension, the parent company extends its original brand into different product lines but belongs to the same market segment. One of the examples can be a shampoo manufacturing and retailing company. It originally targets at serving shampoos for young females. However, under a franchise extension, it expands its product line into hair conditioner for young females. Note that the customer market segment does not change.
Apart from the above strategies, vertical brand extension involves the launch of a product or service in the same and existing category, but of a different price range or quality level. For example, a fashion design brand enters a new category – accessories at a higher or lower price level.
Sometimes, a company adopts conglomerate extension in which it launches a new yet completely unrelated product category. Brand prestige extension suggests that the brand image of the company is extended to the new product. For instance, a music streaming app provider extends by launching toys for young babies. Despite the fact that the app provider might not have any expertise in manufacturing toys for young babies, it can make good use of its brand reputation built by providing its music streaming service.
After understanding what product line extensions and brand extensions are, it is the time for us to differentiate them. Product line extensions and brand extensions differ in the following.
Product line extension refers to the launch of a new product within the existing product line. On the other hand, brand extension is defined as the launch of a completely new product which falls outside the existing product line. The scope of new products is slightly different in two extension strategies.
Generally speaking, brand extension poses impacts on the brand reputation more significantly than that of product line extension. When a company adopts brand extension, it actually expands its brand equity to other new product markets, which it has never touched on before. Hence, the nature, price range and quality of the new product are determined by the company without prior experience. That is why brand extension generally has a greater effect on brand equity.
For product line extension, the situation is the opposite. When the company adopts product line extension, it operates at its original product line. As the brand previously engages in that product line, it has built brand awareness and connection with customers already. Therefore, the further enhancement in brand equity might not be as significant as that in brand extension.
Announcing a brand extension often surprises the general public, especially the competitors. However, offering new products which are unrelated to the existing product line can end up with expensive costs. When it comes to the cost side, product line extension is more cost-effective than brand extensions in overall.
In a product line extension, the company already has some prior experience in managing the existing product line. Because of familiarity, it at least has brief ideas and concepts regarding the market segment and its capabilities. For example, they know which distribution channels and marketing strategies it should go for according to previous experience. As a consequence, they don’t need to splurge on market researches and consumer studies.
Unlike brand extension, the company takes a riskier option. Due to the lack in experience regarding the new product, the company has to go through all the hustle and bustle in order to select the best retailer, manufacturers and customers’ segment. The cost added up can be appalling, especially for young startups.
Product line extension and brand extension, or category extension, are popular marketing strategies used by businesses. Their core differences lie within the scope of the new products. Although category extension allows a company to extend its brand reputation into an unprecedented market, it has to bear the cost of launching an unpopular product wrongly.
Businesses ought to strike a balance between the potential merits and drawbacks among the two in the pursuit of a successful product innovation.
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