What are the reasons for line extensions?
The reasons why managers favor line extensions may be discussed under the following headings:
- Customer Segmentation
- Customer need for variety
- Pricing breadth
- Capacity utilization
- Quick gains
- Competitive forces
- Trade demand
1. Customer segmentation: There is a shift in emphasis from mass marketing orientation to individual customer orientation. A market segment always consists of a group of people within a market with similar needs and buying habits. In such a scenario, marketers find it easy to meet the needs of various customer segments by line extensions. Line extension is a low cost and low risk strategy to extend existing brand names to new product categories.
2. Customer need for variety: Customers try new brands in order to break away from boredom. So, the company should provide customers with new brands. Or else customers would be lost to competition. Under line extensions, a number of variants can be easily provided under the same umbrella. For example, Colgate is able to focus on the children segments by launching Colgate Strong Teeth (Calcium) variants. Biscuits are marketed in variants to satisfy customers who seek variety.
3. Pricing breadth: Line extensions offer opportunities for profit increase by launching products at higher prices. This move allows customers to move up to higher price points. At the same time low priced brands are made available to those customers who cannot afford to pay higher prices. Prices varying between high and low points are convenient to customers in various segments of the market.
4. Capacity Utilization: Modern firms are inclined to build plant capacities which are efficient and world class. This needs a higher investment in the form of fixed costs. An optimum capacity utilization is needed to quickly recover fixed costs and line extensions are used as a means of utilizing excess capacity. By introducing minor changes in the brand and plant, fuller utilization of capacity is possible for firms.
5. Quick gains: Line extensions permit good sales performance thereby enjoying quick gains. Moreover, line extensions are less costly than new product launch. Brand managers can generate more sales quickly and relatively inexpensively through line extensions. They achieve quick rewards without assuming greater risks in brand extension. Creation involves a lot of uncertainty and risk.
6. Competitive forces: The present market witnesses offerings in different forms, shapes, sizes and flavors. The abundant variants of products compete for retail space in stores. So, marketers are interested in knowing how much retail space is occupied by his with too many variants. Usually, a marketer with extensive product line gets access to the shelf space.
7. Trade demand: In the marketplace, new Forms of trade partners and retail channels emerge. So, marketers are compelled to extend the line by developing brands. Moreover, channel partners demand bulk packages and customized models. Different items are to be designed to meet special needs of premium stores, mass stores, specialty stores etc.