More than three-fourths of line extensions fail. This signifies a loss of millions of dollars in innovation, launch and marketing / advertising spends. In addition to that, there is the loss of intangible resources in the form of time, energy and organisational resources. But the continued proliferation of range and line extensions in supermarket shelves keep on pointing to the fact that organisations are not learning from their mistakes.
A spate of product launches also does not seem to garner the consumer’s attention these days. A recent survey, findings for which were published in MarketingWeek, highlights the waste and inefficiencies in product launches, with 28% of those surveyed able to recall any product launch activity.
Line extensions, which is the focus of this article, form a large proportion of new product launches and suffer from equal, if not more, failure rates. Behind these failure rates lie wrong mindsets and thinking, which mistake shallow trends as growth opportunities or promote copycat behaviour.
In my recently published article in Brand Quarterly, “The Brand Evolution: From “Many” to “One”…
….I have highlighted how organisations are slowly realising how seemingly impossible is the task of defining differentiated positioning for individual brands in bloated portfolios. Hence we see the current trend of moving towards one brand architectures and master brand positioning. From the time I wrote the article, this trend seems to be gathering momentum with Jim Beam moving to a one-brand strategy (to be reflected and communicated through a revamped packaging design).
Many of these movements towards one-brand strategies are late reactions after the damage has been done (and sizeable proportions of global marketing budgets eroded). Brand owners need to act earlier and faster to make their brand innovation processes leaner and attuned to strategic goals. But a change in mindset is required to be efficient and focussed around brand innovation.
In the current age of digital engagement and “digital first”, brands are constantly in a state of flux. Unified identities need to be forged, positioning needs to be constantly reinforced, multi-touchpoint experience needs to be made consistent and brand appeal needs to cut through a wide ranging sets of micro needs and multi-channel customer decision journeys.
In such complexity, any form of line extension needs to empower the master brand rather than take away from it. Brand owners need to constantly ask these questions:
- Is the extension really required from a strategic growth perspective?
- Is there a sizeable, commercially exploitable opportunity in the category that warrants the extension?
- Is the opportunity (or the need driving it) going to grow exponentially over time?
- Are there sub-opportunities or threads emerging that a new extension can tap into?
- Can the new extension evolve into a platform that can act as a springboard for more successful product launches?
Extensions that are simply exercises in matching competitive behaviour or aimed at catering to fads (disguised as needs) destroy master brand equity and creates a confused consumer mindset (the said trigger behind Coke’s move to one-brand positioning).
Recent trends in portfolio rationalisation are an indication that organisations are recognising reality in a hard way. Consequently, innovation processes need to be structured around realities of brand building in the digital age. Innovation processes have to be structured around three core realities – the need the extension is catering to has long-term viability, windows of brand engagement have significantly shortened and offline and online brand perceptions need to be consistent.
According to Nielsen, 76% of the 12,000 product launches in Western Europe between 2011-2013 failed:
The above robust statistic indicates that the adoption of a more strategic mindset towards brand innovation continues to be sluggish. Increasing use of consumer co-creation processes, crowdsourcing to fine-tune and sharpen ideas and commercial pressures of shrinking marketing budgets have added more discipline to innovation processes lately. But more needs to be done.
Organisations need to adopt a 10-point guideline to ensure that brand innovation processes are aligned with strategic brand development goals and ensure maximum efficiency of marketing spends.
1) Successful brand innovation should kill the 80:20 adage: The age old principle that 20% of your products (aka brands) will contribute to 80% of your revenues is inefficient and wasteful. It is a paradigm that needs to be scrubbed clean from organisational mindsets. This thinking is a primary contributing factor for expensive portfolio optimisation exercises, sell-offs and brand kills. Organisations need to move towards lean portfolio principles wherein a small portfolio of brands contributes to more than 80% of revenues.
Brand innovation’s role in today’s markets is to enhance the value and proposition of existing brands rather than launching new ones. Competition and economic forces do not allow for a majority of the portfolio to sit and drain organisational resources or become part of the brand graveyard.
2) Innovation needs to be an outside-in exercise rather than an inside-out one: If line extensions are being thought of, their development and launch need to be rooted in strong commercial viability principles. The startup model of “minimum viable product” does not hold for large scale global organisations due to the size of the risk involved in case of failures. Organisations need to move away from the old-fashioned thinking that brands need to be refreshed periodically. Brands do not need to be refreshed if they are kept relevant, have the ability to evolve over time and have the ability to generate long term appeal. Like product launches have stage-gates, any form of line extension launch needs to have a mindset / thinking stage-gate.
3) Strong quantifiable and measurable links between brand and commercial metrics: Extensions that come through the innovation pipeline need to have stronger and more rigorous pass / fail metrics. These metrics need to be structured around strengthening the core brand equity, expanding the appeal of the core brand proposition and enabling growth of brand share. Organisations still need to see the value of volumetric exercises based on purchase intention scores (in test environments) but that should not be all. With all good scores in purchase intention driving strong volumetrics, if an extension performs average or just above average on core brand equity metrics, any form of volumetric success needs to be reevaluated.
4) Line extensions, at a minimum, should have two strong differentiators: And these should pass rigorous consumer and stakeholder research. The first of these differentiators should enhance the master brand proposition and the second should be the line extension’s own unique one. Having both is important because it provides strategic advantage on two fronts – the ability to expand the master brand’s appeal and for the extension in itself to stand and compete in the category.
5) Everyone is talking about influencer marketing – for real launch success we need more “naysayers” in the innovation process: Organisations need to have devil’s advocates at each and every stage of the innovation process. Hard decisions requiring significant investments require hard questions to be asked. Millions of dollars in strategic marketing / advertising budgets are squandered because through the development and launch process, somewhere someone stopped asking the hard questions. These essential “naysayers” should question the line extension from a commercial and brand growth perspective.
6) Line extensions are “extensions” and should be treated as such: It is of course natural that a brand extension launch needs to be supported through marketing / advertising spends. The original intent of using the extension to widen the appeal and relevance of the master brand is lost at this stage. If during the brand extension launch process a link with the master brand is not established, then that link is forever lost. It is important to forge an identity of the new extension, but it is equally important to keep visibility of the fact that gains should accrue to the master brand.
7) Line extensions should have very strong “adjacency” plays: One of the first factors to influence the success or failure of a line extension is the choice of the category it is supposed to play in. From ‘shampoos’ to ‘facial care’ is a good adjacency play but a movement from ‘detergents’ to ‘facial care’ may not be. Brands have identities that are forged over significant periods of time, and line extensions should not muddle those identities. It causes more harm (both in terms of equity and commercial performance) to the master brand than to the extension. If the extension fails it fails, but to repair the damage to the core brand equity may take longer and could be a complex exercise. This is where the link with the master brand proposition is critical. The master brand proposition can be ‘stretched’ through line extensions, but not to a point that it ‘snaps’.
8) Line extensions need to justify their existence by more than just contributing to master brand growth: In a comprehensive analysis covering competitive advantage in the FMCG market, BCG identified that “speed” is a crucial weapon. A FMCG company that was able to cut down its development-to-launch time from 22 months to 15 months had a bigger competitive advantage.
Let’s work with the assumption that speed to launch is critical. I would simply argue that it is a subjective issue and entirely depends on the nature of the opportunity that a brand wants to leverage or exploit. Unless (and again) an organisation is looking at short term gains, any line extension needs to be developed with at least a medium-term strategy (if not a long-term one). So, what are the crucial questions this medium-term strategy should address?
- Does the line extension has strong differentiating characteristics that gives it a longer life (without needing an overhaul or refresh)?
- Does the line extension has spin-off power?
- Does the line extension has the ability to become a platform for further launches? Can the line extension extend master brand equity beyond adjacencies?
These medium-term strategic questions need to be counter-balanced with achieving speed of launch. If it is only meant as a tactical launch, go for speed (but risk contributing to proliferation or adding a layer of fat to the brand portfolio).
9) Ability to ward off competitive threats for the first 1-2 years: It is a known fact that the first one or two years are loss making periods for a new brand. The losses might be less in case of a line extension because we are not inventing a new brand name but can still be substantial (investments in R&D, packaging, launch, activation and support) as sales slowly grow. This is kind of linked to Point 4, but any strategic line extension should have the ability to ward off or counter competitive threats in these crucial first two years. Competitors will eventually follow, but the line extension should be able to provide a “first mover” advantage in the category to the master brand. This is crucial in the FMCG industry because product development has shorter time cycles (which is diametrically opposite to technology and pharmaceuticals).
10) Quid pro quo should be an important aspect of line extension development: In some of my previous points, I have highlighted the importance of line extensions contributing to the master brand equity and proposition. The opposite is also extremely important. The master brand should have a level of stretchable equity that justifies the existence of the line extension.
Al Ries definitely believes that line extensions ultimately destroy the core brand’s equity:
I am not taking such a hard stance but for line extensions to be successful it is important that organisations follow a set of principles that sets the launch for success (and not as an also-ran).