There are many ways in which businesses try to grow their reach and increase their sales revenues. One way is product line extension. Businesses that have already survived the beginning times when they kick off the ground and are now seeking to expand their reach and enhance their brand equity take such measures.
What is Product Line Extension?
When a business has a line of products that are doing well, and it adds more products to it, it is doing what you call product line extension. This differs from coming up with a new product line, where the business introduces a unique product altogether.
A product line extension example would be a soft drink manufacturer introducing a ‘diet’ version of its drink to its cola line. Another example is a fluffy toy manufacturer coming up with a new cartoon character to add to its existing line of medium-sized character-stuffed toys.
Product line extensions increase the variety of its existing products so that the products can appeal to a wider and more diversified audience. They also entice the current customers to make more purchases.
In terms of services, let’s consider a company offering home design and renovation services. At first, it focused most of its packages on bedroom redesigning. Now as part of its product line extension, it is offering a living room and dining room redesigning as well.
Image taken from Strikingly user’s website
A brand line extension is the penetration of the brand itself into new markets or customer segments. An example would be a soft drinks manufacturer launching a new line of fruit juices under the same company name. Here, brand loyalty would entice customers to try out the new products even though they will be completely non-related to the previous products.
Another example of brand line extension is a detoxifying fruit drinks manufacturer introducing bottled mineral water. Assume the company in the website screenshot shown below announces the launch of its pure water bottles. That would be totally different products than the existing drinks it is selling. It would mean the company is doing brand line extension.
Image taken from Strikingly user’s website
Now that you understand what product line extension is, let’s discuss the pros and cons of extending your product and brand lines.
How Product Line Extension Helps Your Business
As you can see from the product line extension examples given above, an extension in a company’s line can totally reinvigorate its sales. The new products or new product lines will benefit from the existing customer base and brand image. Some of the common benefits a business gets from product line extension are as follows.
1. It Draws In New Customers
Adding more variety to a product line would definitely put more eyes on the products of a business. Customers who were originally not interested in its products could now potentially want to have a look. For example, assume a company selling women’s wear in six different colors now comes up with a seventh color in the same clothing designs. Let’s say the new color is black. This will attract an entire group of women who like to wear black in all fashion designs. They were probably not buying from this brand before because their favorite color (i.e. black) was not available in this brand’s designs. Now they would buy and cause an increase in the company’s sales by becoming a new segment of the brand’s customer base.
Now if the same company also starts selling fashion accessories for women, that would be its brand line extension.
2. It Keeps the Existing Customers Excited
No matter how loyal a customer is to a brand, if the company keeps selling the same products time and time again, the customer will eventually get bored. They would probably start looking around for new brands to buy from. Take the example of a fast-food chain. If the restaurant keeps selling the same burger for 5-6 years, customers would lose their excitement for its taste. They will start buying from other food chains to get a distinct taste in the mouth. They might even switch to somebody who is selling food from home.
Product line extension helps to keep your existing customers excited about your brand. When your customers know your products will never go outdated, because you keep coming up with new designs or flavors to add variety, they will be more loyal to you.
3. It Increases Profits
When your existing customers continue to buy from you and new customers also come in, your business would, of course, have an increase in its sales and profits. Be careful in charging reasonable prices for your products though. You would not want your customers to back off if, along with product line extension, you skyrocket your product pricing as well. If you are running a business online, raising your prices too high could lead to a higher bounce rate.
4. It Helps in Achieving Economies of Scale
Product line extension rarely requires a business to invest in added machinery or factory equipment for production. When you use the same machinery to manufacture more products, you are more likely to achieve economies of scale. This means your product will become more efficient and your production costs would reduce. This is good for increasing your profit margins and reinvesting the extra profit earned back into your business.
5. It Enhances Marketing Efficiency
Since product line extension would broaden your customer base, you will run your marketing campaigns to a wider audience within the same budget. This would enhance the efficiency of your marketing efforts. Whether you are running your business online or through retail outlets, you will get more returns on your advertising campaigns.
6. It Enables the Business to Occupy Larger Shelf Space
Having more products to sell means being able to occupy more shelf space in the retail stores. This means customers would take longer to pass through your line of products while shopping. If you are running an online business, then this would mean your site visitors will view a richer product portfolio, which will make them spend more time browsing your site.
Image taken from Strikingly user’s website
To benefit the most from this, you can develop planograms and decide how to use all the extra shelf space that you will get because of your product line extension. Planograms are also very helpful if you are coming up with a new product line.
How Product Line Extension Can be Risky For Your Business?
Despite all its benefits, as we learned from the product line extension examples given above, there are risks associated with this action as well. It is part of a business’s marketing strategy, and any strategy needs to be planned and implemented carefully.
Below are the two major risks a business might face when it goes through product or brand line extension.
1. Your Company Name Could be Tarnished
Sometimes the original line of products has outstanding quality, but when the line is extended or a new product line is introduced, the quality drops. This could happen because of the careless attitude of the factory workers or negligence on part of the factory manager. Whatever the reason, if the new products do not have up-to-mark quality, your customers might end up disappointed. Instead of bringing any good, a new product line could actually cause you a loss in this case.
Some products turn out to be an immense failure. If that happens, it will not incline your customers to try out any more new products that you come up with in the future, as you will lose the brand loyalty that you worked so hard to build from the beginning.
For example, an online store selling wedding dresses could come up with a new bridal design that turns out to be a failure. Not only would the company not make many sales from the new design, but its sales from the older designs might also drop.
Image taken from Strikingly user’s website
2. Failure of the New Products Would Cause Financial Loss
Besides losing your brand image, if your product line extension is unsuccessful, you might also lose a lot of money. All the money that you invested in manufacturing the new products, plus all the planning and marketing that went into it, would all go to waste.
If your business is not sustainable enough to handle such a financial loss, it is better to think twice before extending your product line. But if you can afford to face losses as your trial-and-error your way through, then go ahead. You can come up with a different product line extension after the first one fails.
Choosing to diversify your product line or simply adding to your existing product line is always a judgment call for a business. If you do your research properly, you will make more informed decisions. If your business is online, you can use your website’s analytics to make better decisions.
At Strikingly, we offer our users additional statistics, apart from Google Analytics, so that they can keep track of how their website is performing.
