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.
LEARNING OBJECTIVES
Describe the nature of a product line extension
KEY TAKEAWAYS
Key Points
- 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.
Key Terms
- product line: A product line is the marketing strategy of offering several related products for sale as individual units.
Introduction
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.
Down-Market Stretch
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.
Up-Market Stretch
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
Two-Way Stretch
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.
Examples include:
Take Your Pick: Coca-Cola’s product line offers a variety of Coke flavors.
- 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.