Posted on June 13th, 2019 by Michael Schmid
In further exploring this learning series specific to internal or organic growth strategies, another product or service-related strategy beyond new product development or improving an existing product/service is extending product or service lines. Much like the strategy of improving an existing product or service, extending a product or service line can also serve to drive further growth, expand the brand promise, generate innovation, re-invigorate a mature or declining brand, or even capture a valuable niche within the market that perhaps heretofore has been ignored or neglected. But even looking beyond growth as a strategic imperative, product (service) line extensions can also be an effective means of test-marketing product improvements or alterations, and/or addressing emerging segments.
A line extension strategy can be a means to make a brand more relevant, creating renewed interest in the product line or service. It can also be a foundation for further differentiating the product or service from the competition and driving more sales. Over the years Arm & Hammer™, for example, has created a series of line extensions giving it an entrance into new markets where formerly the baking soda company never had a presence. Although baking soda remains the foundational product for its line extensions, it now has a presence in toothpaste, home and car air fresheners, cat litter an many other categories.
Although most often associated with new product development, the discipline, research, development and testing of a product or service line extension can and should be every bit as rigorous a marketing and R&D exercise as new product development. But in comparison to new product development, the development cycles and time-lines associated with line extensions may be dramatically shortened and therefore costs better contained, given that the foundational product or service is already well-developed and marketed. While line-extension strategies can serve to drive inward innovation, the real benefit is in establishing the perception throughout the target market(s) that the company or brand behind the product or service is indeed innovative. Tide® Pods™, for example, are an extension beyond liquid detergent, but an innovative means of delivery, yielding the proper amount of detergent for each and every load of laundry.
A product or service may have a strong image that promotes loyalty, but is exclusionary. A line extension can serve to expand that promise, granting access to more customers and therefore growing revenue. For example, in the mid-1980s Mercedes-Benz launched the 190 series – a lower-priced model. It was a strategy that allowed the company to reach more consumers by extending its vaunted brand into the sub-luxury market segment, providing those buyers with the opportunity to “feel” exclusive.
Unserved niche markets for a mature product or service may exist, but given their marginal size, a company may not recognize those markets as financially viable from an ROI imperative. But niche markets can (and often do) represent important footholds for competitors. Line extensions can be a strategic means of inhibiting competitors from market entry and gaining share through the pursuit of a niche market. Throughout much of the 1970s and 1980s American auto manufacturers chose to ignore the market for small (compact), lower-priced vehicles. Japanese car manufacturers gained the advantage by servicing a segment of American consumers who were seeking a lower-priced, compact alternative. In the decades since, companies like Toyota, Honda, Nissan etc. have gained considerable market share, becoming the second, fifth and sixth most dominant car companies, respectively, in the United States.
Product or service line extensions are one of many potential strategies to drive organic growth. Pursuing a line-extension strategy can have additional benefits beyond growth, including generating innovation and blocking competition. A line extension strategy can also be pursued coincidently with new product development and product/service improvement strategies, but nevertheless it is important to be familiar with all of these typical growth strategies in order to create and execute effective business and marketing plans. Stay tuned for the next article in this series which will be a deep dive into geographic expansion as yet another strategy for driving and delivering organic growth.