Managing Existing Products
When to Extend Product Lines
A company can extend its product line using a down-market stretch, an up-market stretch, or a move both ways.
Describe the nature of a product line extension
- A line extension should only be considered when the producer can profitably produce a product that compares well with the base product.
- Changing market environmental factors often indicate when the timing suites a product line extension.
- The environmental cues help organizations determine if they should stretch down-market, up-market, or both ways.
- product line: A product line is the marketing strategy of offering several related products for sale as individual units.
A product line extension is the use of an established product’s brand name for a new item in the same product platform. Thus, line extension occurs when the company lengthens its product line beyond its current range. The company can extend its product line with a down-market stretch, an up-market stretch, or a move both ways.
A company positioned in the middle market may want to introduce a lower-priced line for any of the three reasons:
- The company may notice strong growth opportunities as mass retailers such as Wal-Mart, Best Buy, and others attract a growing number of shoppers who want value-priced goods;
- The company may wish to tie up lower-end competitors who might otherwise try to move up-market. If the company has been attacked by a low-end competitor, it often decides to counterattack by entering the low end of the market;
- The company may find that the middle market is stagnating or declining.
Companies may wish to enter the high end of the market for more growth, higher margins, or simply to position themselves as full-line manufacturers. Many markets have spawned surprising upscale segments:
- Starbucks in coffee;
- Haagen-Dazs in ice cream; and
- Evian in bottled water.
Leading Japanese auto companies have each introduced an upscale automobile:
- Toyota’s Lexus;
- Nissan’s Infiniti; and
- Honda’s Acura.
Note that the companies invented entirely new names rather than using or including their own names
Companies serving the middle market might decide to stretch their line in both directions. Texas Instruments (TI) introduced its first calculators in the medium-price-medium-quality end of the market. Gradually, it added calculators at the lower end taking the share from Bowmar, and at the higher end to compete with Hewlett-Packard. This two-way stretch won Texas Instruments (TI) an early market leadership in the hand-calculator market.
- Zen LXI, Zen VXI;
- Surf, Surf Excel, Surf Excel Blue;
- Splendour, Splendour Plus;
- Coca-Cola, Diet Coke, Vanilla Coke;
- Clinic All Clear, Clinic Plus; and
- Reese’s Peanut Butter Cups, Reese’s Pieces and Reese’s Puff Cereal.
A line extension strategy should only be considered when the producer is certain that the capability exists to efficiently manufacture a product that compares well with the base product. The producer should also be sure of profitable competition in this new market.