Brand Extension: A double edged sword
The last a few years witnessed proliferation of product line extension by brands. Market players pursue line extension for short-term gains overlooking the associated pit-falls on brand equity. We have also seen well managed product-lines leading to increased profit, market share translating to fortified brand loyalty.
Similar to biological niche, players in market compete on product offerings and mutate their offerings to stay ahead in the market translating to differentiated products and service offerings. This arise the question – “Should organizations opt for line-extension to cater the changing market needs?” For instance, sugar-free and caffeine-free line extensions have created a new market segment of consumers for soft-drinks industry. Managers perceive line-extension as a competitive weapon to cater broader customer segments in a limited retail shelf-space.
The strategic role for the product gets muddled if it is over segmented. From 1989 to 1990, P&G ambitiously introduced 90 new product-lines leading unclear product communication. In 1992, they curtailed 25% of slow moving SKU’s and repositioned their product offerings. Mary Kay cosmetics restrict their product lines within 225 SKU’s for clear product differentiation and communication.
Replacing core product lines with a new formula can be a risky business. Coke in 1980’s decided to cease production of the classic soda with a new flavor to combat competition. Public outraged and they had to re-launch its original formula.
Brand is perceived to have associated skills. Related line-extension enjoys synergy of the associated brand. Unrelated line-extensions are less likely to be accepted. Ben-Gay cream is great for topically relieving aches. However, swallowing it, aspirin was not welcomed. Similar is the case with Horlick’s introduction of “Foodle”, Colgate’s introduction of Colgate's Kitchen Entrees. Needless to say, the products did not take off and never left the U.S. soil.
Further, when manufacturers weaken the brand loyalty, they fall prey to retailer’s power in negotiation on slotting fee affecting the company’s bottom lines. A new brand would always be the better way to handle a genuinely new product. For instance, in 1993, GAP found that competitors were targeting price-sensitive customers by offering GAP-like fashions for 20% to 30%below the company’s prices. So managers decided to offering - the Gap flair -merchandising at cut below Gap quality and price. A year later, GAP found cannibalization of the core brand’s product offerings. In response, they renamed GAP flair with - the new stores Old Navy Clothing Company—a brand that has become enormously successful in its own right.
Branded readymade apparels in India were confined to men’s formalwear until Wills entered the apparel market. Wills changed this trend by positioning itself as a complete wardrobe offering both men and women apparels for different occations under different sub-brands – Wills classic formal, Vibrant Wills sports relaxed wear range, the edgy Wills club-life evening wear range, and the glamorous Wills signature designer wear. This enabled Wills to differentiate itself as premium contemporary fashion and lifestyle brand. This further strengthened the brand equity of Wills brand by extending the product offerings into designer segment which is premium yet accessible in price, aspirational yet wearable.
Introducing a new brand is not always feasible. Creation of brand awareness, establishing brand perception / identity and building customer base for the same is very expensive. Even well established brands fail in setting-up a successful brand. IBM for instance introduced – Ambra a relatively inexpensive personal computers targeting first-time consumers in Asia competing with Dell. Ambra could not maintain a price that was low enough tapping economy of scale because it lacked brand equity to attract higher sales volume. Further it faced challenges in retail distribution channels because Dell was the market leader in the price segment Ambra was positioned.
For a line extension to be successful, brands needs to engage in blue-ocean-thinking offering products and services for which there is no direct competitor rather than adopting red-ocean-strategy to capture market share. For instance GSK’s Sensodyne carved out a profitable share through its focused product positioning strategy in the oral-care market dominated by Colgate and Pepsodent. These brands offered a wide range of sub-brands addressing varied consumer needs – strong gums, mouth-odor prevention and cavity prevention to mention a few. Sensodyne on the other hand identified positioning gap for toothpaste suitable for sensitive teeth and created a new market segment and is the market-leader in the same.
Managers often extend the product-line without removing the existing slow-moving items. As a result the product-line grows huge to be over-segmented hampering clear product differentiation of their offerings and increased manufacturing cost in handling multiple product-lines. In many markets, the development of product-line extensions is a competitive reality. As product categories evolve, a company must continuously adapt its product lines to changing market, competitive, and trade-intermediary conditions to sustain in competition.
A customer-centric strategy can enable a brand in planning the right product-offering to the right market segment. Better product assessment, better days!