When does vari e redundancy?

The Logic of Product-Line Extensions

In the last ten years, productshave proliferated in every category ofconsumer goods and services, andthe deluge shows few signs of lettingup. Most companies are pursuingproduct-expansion strategies-in par-ticular, line extensions - full steamahead. But as Jobn A. Queleb andDavid Kenny argue in "Extend Prof-its, Not Product Lines" (September-October 1994), more and more evi-dence indicates tbat sucb aggressivetactics can be hazardous.

The authors see several reasonswby companies rely on line exten-sions as part of tbeir marketingstrategies: managers perceive exten-sions as a low-cost, low-risk way tomeet the needs of various customer

segments; line extensions can satisfyconsumers' desires by providing awide variety of goods under a singlebrand; and managers ohen use ex-tensions as a short-term competitiveweapon to increase a brand's controlover limited shelf space.

But for all the perceived benefit.';,tbe autbors warn, tbe costs of wan-ton line extensions are dangerouslybigb. Tbe strategic role of eacb prod-uct, for example, becomes muddledwben a line is oversegmented. Fur-tbermore, a eompany tbat extendsits line risks undermining brand loy-alty. Line extensions rarely expandcategory demand, and retailers can'tprovide more shelf space to a catego-ry just because tbere are more prod-

ucts. Most important, the costs ofoverextension can remain hidden.

To avoid tbese pitfalls, Queleband Kenny offer several guidelinesfor sbarpening product-line strate-gies: improve cost accounting, allo-cate resources to popular products,researcb consumer bebavior, coordi-nate marketing efforts, work witbchannel partners, and foster a cli-mate in which product-line dele-tions are supported. As tbe autborsillustrate in a case study, "Snaekco'sFall and Rise," companies that focusa product line can increase profitsand sales volume.

Nine experts offer tbeir views onproduct-line management and thelogic of line extensions.

DRAWING BY PAUL MEISEL 53

Bruce G.S. HardleAssistant Professor of MarketingLondon Business SchoolLondon, England

Leotiard M. LodishSamuel R. Harrell ProfessorProfessor of MarketingThe Wliarton SchoolPhiladelphia, PennsylvaniaCorporate DirectorInformation ResourcesChicago, Illinois

John Quelch and David Kenny'sarticle is an excellent discussion ofwhy cost accounting and marketinggo hand in hand. We're afraid, how-ever, that it may leave the impres-sion that product-line extensions areall bad and should he sharply cur-tailed. While this may he true formany companies, it need not he truefor all. Indeed, with the right eost-accounting and market-research sys-tems in place, line extensions can hequite profitable.

Sales of the entire Doritos line ofcorn chips, for example, rose to morethan $1 billion on the success of theCool Ranch Doritos extension. Inaddition, diet and caffeine-free lineextensions have expanded the soft-drink market to new segments; andthe two- and three-liter bottles havestimulated consumption hecause, inmany households, if they're in therefrigerator, they get consumed. Inthe automobile industry, the FordExplorer and the Chrysler minivanhave forged profitable new marketsegments that are synergistic withthe older ones.

Moreover, in many markets, thedevelopment of product-line exten-sions is a competitive reality. Asproduct categories evolve, a compa-ny must continuously adapt itsproduct lines to changing market,competitive, and trade-intermediaryconditions. Could Crest and Colgatehave ignored the threat from Arm &Hammer's baking-soda toothpaste?During the 1980s, pump packageswere must-haves; today they haveall but disappeared. In 1992, Colgateintroduced its stand-up tuhe,- nowit seems that all the major brandshave adopted such packaging. The hstgoes on.

54

Queich and Kenny note how im-provements in supply-side informa-tion facilitate the management ofproduct lines. Equally important,however, is demand-side informa-tion. Through the careful use of mar-ket research, product managers needto answer such questions as: Howmuch cannibalization can we expectif we launch this line extension-Will we see greater sales if welaunch this product as a line exten-sion? How many customers will welose if we drop this stock-keepingunit (SKU)? Cultivating such infor-mation is not a simple or cheap exer-cise. In our own experience, even a"simple" task like using seanner da-ta to measure cannibalization is notas straightforward as it may seem.

Quelch and Kenny advise allocat-ing "resources to winners"-in otherwords, using zero-based budgeting to

''In manymarkets, the

development ofproduct-line

extensions is acompetitive

reality.As productcategoriesevolve, a

company mustcontinuously

adapt itsproduct lines/'

Bruce G.S. Hardle

Leonard M. Lodish

allocate advertising and promotiondollars, sales-force time, and retailspace. Determining the long-termand short-term profit impact of ad-vertising and promotion requiresmuch testing, experimentation, andanalysis. Designing such programsand analyzing their results is a so-phisticated, difficult activity thatdemands expertise.

Without a douht, excellent marketresearch and analysis have great in-fluence on corporate profitability.Yet most corporations do not givethese functions the recognition, visi-hility, or compensation they de-serve. Companies need to rewardtheir analysts based on their long-and short-term profit returns in re-lation to their costs. A successfulproduct-line extension depends oninvesting in the appropriate cost-ac-counting systems and the appropri-ate market-research systems.

James V. KilmerPresidentRemlik FoodsUniontown, Pennsylvania

Quelch and Kenny illustrate onlyone among many brand and product-line strategies that result from poordecision making. I wish the authorshad examined another common hadhabit - that of making hrand deci-sions based on concerns with ego,money, and power, not on long-termobjectives like profitability.

Ego has driven managers to prolif-erate hrand names across categoriesand industries. This can lead to sig-nificant complications. For exam-ple, a brand like Weight Watchers -which spans weight-loss services,hooks, magazines, and foods - findsthat the only common position ap-plicable to the brand is the brandname itself. Healthy Choice, Kraft,and Heinz are among many brandscompeting in numerous food cate-gories with little attention paid tohuilding hrand loyalty. Shoppers whostrongly prefer Heinz in the catsupcategory will still choose Gerber inthe haby food category. Brand recog-nition, the watchword of market-ers today, holsters the egos of manysenior managers at the expense ofbrand loyalty.

Money - bonuses, stock options,and salaries-drives short-term deci-sions. Quelch and Kenny note thatmanagers have set aside long-rangeplanning and ignored the weakeningof brand loyalty infavor of appeasingthe financial community's demandfor sbort-term results. But tbe au-thors fail to bigblight that manage-ment directly benefits from incen-tive plans based on sbort-term goals."Worry ahout acbieving tbis quar-ter's goals this quarter, and worryabout next quarter's goals next quar-ter" is the dominant sentiment ex-pressed in many management meet-ings. Managers who view theirtenure nearsightedly see line exten-sions as tbeir opportunity for imme-diate personal financial gain.

Power, of course, makes managersfeel more in control. Manufacturersfeel tbat the "increasingly powerfulretailers" (as Quelch and Kenny putit) are to blame for their low mar-gins and shifting market shares. Yettbese symptoms are just anotbereonscquence of avoiding long-rangebrand issues. Quelch and Kennyneed to identify the power struggletbat is being waged today betweenmanufacturers and retailers.

Wben manufacturers weakenbrand loyalty tbrougb tbeir own ae-tions, they fall prey to the retailer'sdesire to gain greater power in nego-tiations over shelf space. The powershift means greater opportunity forretailers to demand higher slottingfees and gain a larger share of profitmargins. Tbis sbift will ultimatelydamage the egos and finanees ofmany senior managers.

As long as manufacturers foeus onthe sbort term, profits will decline.However, guided by long-term plan-ning, managers will make decisionstbat build brand loyalty and, ulti-mately, tbe power, money, and egoof tbose daring enough to take tbelong view.

David R. BeattyPresidentWeston Foods Ltd.Toronto, Ontario, Canada

Marketers would do better if tbeythought of tbemselves as biologistsstudying tbe evolution of a species

rather than as accountants studyingeacb element of eost in ever finer de-tail, Biomarketing-wben marketersadopt an evolutionary perspective -will save today's market leadersfrom becoming dinosaurs.

Just as in biological nicbes, whereinhabitants constantly compete forresources and mutate over time,eereals, soft drinks, and otber goodsebange and evolve. "Parent" prod-ucts like Pepsi give rise to evolution-ary "children" like diet sodas.

In addition to gradual evolution,"punctuated equilibrium" also ex-ists in botb eeological and market-ing realms. Dramatic shifts in tbeenvironment force great bursts ofchange. |ust as a natural cataelysmwiped out tbe dinosaurs 65 millionyears ago, a technological cataclysmeliminated tbe borse and buggy 100years ago. Tbe biomarketer must

''Marketerswould do betterif they thought

of themselves asbiologists

studying theevolution of aspecies rather

than asaccountants

studying eachelement of

cost/'David R. Beatty

constantly research the environ-ment and tbe vagaries of eaeb popu-lation, looking not only for tbe grad-ual mutations hut also for tbe burstsof ebange. Failure to adapt productlines to either of these types ofchange means extinction.

Sucb environmental sbifts arcnow cbanging the dynamics of pack-aged goods. For more than SO years,manufacturers have been tbc domi-nant industry force, garnering mostof tbe economie surplus. But todaythe NYSF-Iisted packaged-goodscompanies tb^n have lost more than$50 billion in market value sinceMarlboro Friday are in danger of be-ing overwhelmed by the new retailerspeeiation.

Retailers are taking control oftbeir shelves and tbeir customers.Consider the growth of store labels,such as President's Choice andSam's American Choice. These la-bels offer a product as good as or su-perior to tbe national brand leader atprices 30% to 50% below tbe lead-er's price. Store labels like thesehave created a sudden burst ofchange. Those who don't respondvigorously will be wiped out.

In the cookie category, whiehgrew a modest 2% in 1993, Nabiscohas introduced a full line of Fat FreeFruit Bars and its new Snackwellline. These new "species" of offer-ings have so appealed to U.S. con-sumers tbat Nabisco's sales have in-creased tbree times as fast as tbeoverall market. Nabisco has pros-pered as its branded competitorsbave witbered precisely because ofits product-line innovation.

Diversifying tbe product line, cre-ating new products, and splittinglarge stock-keeping units into small-er ones botb ensure tbat the parentbrand will evolve to meet the de-mands of consumers and make itmuch tougher for the retailer to sup-plant tbe species with a store label.

Tbere are many dead ends in prod-uct-line evolution as well as inspecies evolution. Tbese dead endsare indeed costly. And tbere aremarginal players who bang on bytheir fingernails. But tbe essence oflife and products is change. Biomar-keters must innovate.

continued on page 58

55

Paul W. FarrisLandmark CommunicationsProfessor of BusinessAdministrationThe Darden Graduate Schoolof Business AdministrationThe University of VirginiaCharlottesville, Virginia

Quelch and Kenny provide a time-ly summary of the reasons and ratio-nalizations for product proliferation.My own shelf-space research, in fact,leads me to support their analysis ofSnackco. I do, however, see a role forextensions as a method of continual-ly improving the core brand.

Shelf-allocation models that twocolleagues and I built confirm thatseleeting the right products and giv-ing them enough space tu keep themin stock are far more important thanadding space for marginal items.Shelf-management systems that donot consider how consumers behavewben products are out of stock mis-lead marketers and retailers intoadding more product lines than theyreally need.

The problem Snaekeo faees eanbecome an even tougher hattle in themajority of companies. First, othercompanies generally depend on sec-ondary market-research suppliersfor shelf data. Second, other compa-nies have only indirect influenec onthe shelf, mainly through retail buy-ers and merchandisers. Snaekco's di-rect-delivery system supplies gooddata and greater influence over howproducts are placed. Third, becauseSnackco delivers directly to stores, itmay economically place lower quan-tities on the shelf. Other companieshave to deal with the minimum-order quantities dictated by morecumbersome delivery systems, fur-ther reducing the flexibility of shelfdesigns. These factors argue for oth-er companies to stick even closer totheir core products.

Deeiding which products are coreis the sticky point. Simply replacingestablished brands with new, im-proved formulas can he unnecessari-ly risky. New Coke (more recentlyknown as Coke II) is a prime exam-ple of a "better" product that en-countered unexpected resistance.On the other hand. Diet Coke was

''Decidiwhich productsare core is thesticky point.

Simplyreplacing

establishedhrands with

new, improvedformulas can heunnecessarily

risky/'Paul W. Farris

the most successful soft-drink intro-duction for decades. Contrary to thepredictions of some positioning gu-rus, it heat Tab cold. Perhaps Coke IIwould have heen more sueeessful ifthe eompany had initially given con-sumers a choice between formulas.Produet-line extensions can be effec-tive ways to test-market product im-provements and at the same time ad-dress emerging segments.

A new brand may often be the bestway to market genuinely new prod-ucts. For example, it is hard to saywhether Diet Coke was the best wayto introduce low-calorie soft drinks.Even if the new brand succeeds,however, its niche may develop intoa strong market segment. Then es-tablished brands may be forced to in-troduce similar extensions to fightcompetition. Sanka pioneered thedecaffeinated coffee category, but

time and the popLilarity ot ruduetdcaffeine have forced all major brandsto make decaffeinated versions oftheir own.

This system, which produces du-plication, also encourages brands toinnovate or be left behind. A compa-ny therefore must regularly pare theproduct and hrand lineup to give oth-ers a ehance. That is the spirit inwhieh I interpret Quelch and Ken-ny's suggestions for steering a coursebetween variety and redundancy.

Alexander L. BielPresidentAlexander L. Biel & AssociatesMill Valley, California

Much of Quelch and Kenny's well-crafted thesis on the danger of wan-ton brand extension is based on theextremely tough retail environmentfor fast-moving consumer goods. Inmy view, the real danger in unhri-dled, unstrategic brand extension isthe dissipation of hrand image -a hazard not limited to packagedgoods. However, there is also a veryreal opportunity to use line exten-sions to build a positive image forthe parent brand.

The image of a brand arguahlydrives its equity. Conventional wis-dom suggests that advertising is in-variably the source of brand image.But, in fact, brand extensions canfundamentally change the image ofthe parent brand.

If the fit is inappropriate, the ex-tension can do substantial harm.Well managed, however, it can be anenormous benefit. For example,when Mercedes-Benz launched the190 model in the mid-1980s, theeompany was able to reach fartherdown into the sub-luxury-huyer seg-ment than ever before. The risk:Would the 190 degrade the image ofthe established Mercedes brand? Onthe contrary, the introduction con-tributed an excitement and youth-fulness to the entire line.

Think of hrand image in terms ofthree components: maker image,product image, and user image. Mer-cedes could have chosen a saferroute hy introducing a new brandpositioned as "hy Mercedes." Al-though a costly strategy, it would

58 HARVARD BUSINESS REVIEW November-December 1994

have leveraged the maker imagewhile insulating it from any possihledegradation associated with a lessprestigious car. However, this strate-gy would have limited the attractiveuser image that thc Mercedes 190quickly developed and donated tothe parent hrand.

Similarly, introducing an upscaleline can be a useful strategy for amarketer with a downscale image.When Gallo introduced its premiumvarietals, the company decided touse the Gallo hrand name. Gallo'sprior association with lower pricepoints clearly reduced thc appeal ofthe new varietal line. But the upmar-ket product image, in addition to theuser image of the varietals, was animportant positive association forthe parent. In other words, the vari-etals serve a useful purpose beyondtheir own volume contribution.

When Gallo came out with winecoolers, on the other hand, the com-pany wisely distanced itself hy build-ing a separate hrand, Rartles &.faymes. While the Gallo hrand namecould have helped create consumers'acceptance of this product, the winecooler's soft-drink image too strong-ly contradicted the brand-enhance-ment strategy of thc wines. •

Without a douht, the cost of line-extension failures can he great. Theinadequacies of Apple's Newton, forexample, cast a shadow of doubt onthe company's core competencies.But even when line extensions fail,they don't necessarily damage theirparents fatally. Gonsumers are oftenwilling to forgive strong hrandswhen they stumhle. What's more,failed extensions are usually with-drawn sooner rather than later, giv-ing them less time to do damage.

Brand extension is a douhle-edgedsword. Even a successful extensioncan damage its parent's image. How-ever, thc strategic use of extensionscan also help reshape the image ofthe parent hrand.

]As they ^consider newproducts and

services,managers must

carefullyevaluate notonly how thebrand affects

the lineextension butalso how the

line extensionaffects the

brand/'Laura S. Wicke

Laura S. WickeSenior PartnerMarketing Gorporation of AmericaWestport, Connecticut

Add to Quelch and Kenny's risksof line extensions the risk of diluting

a hrand's equity dramatically withmultiple line extensions. As theyconsider new products and services,managers must carefully evaluatenot only how the brand affects theline extension hut also how the lineextension affects the hrand.

A hrand's equity consists of thekey elements that drive demand forhrand products and services. This in-cludes some aspects of how cus-tomers perceive and experience thehrand-its image-but not necessari-ly all aspects. It is critical to identifythe key equity elements and to en-sure that the line-extension strategyis appropriately designed to leverage,protect, and reinforce the hrand eq-uity. Consistency with hrand imagemay not he enough; consistencywith the hrand equity is required.

If thc line-extension image jarswith any of the hrand equity ele-

ments, it will erode the entire line.For example, a major producer andmarketer of fresh premium hrandedmeats developed a series of pro-cessed-meat line extensions. Thecompany hoped to leverage its "highquality" image, which it believed tohe its essential hrand equity. Unfor-tunately, its equity was more strong-ly related with "freshness"-an im-age at odds with processed food. Thecompany ultimately withdrew theproduct-line extensions. But hadmanagers measured the profitabilityof the line extensions alone, theywould have continued to market theproducts with potentially disastrousconsequences for the core hrandproduct lines.

Multiple line extensions thatweaken a hrand's identity can alsoerode equity. A leading manufactur-er of upscale men's and women's ca-sual wear learned this the hard way.The company extended a stronghrand name associated with an up-scale, leisured lifestyle across ahroad range of apparel. The brandname lost value quickly, ultimatelydamaging thc success of hoth thcparent and the line extensions.

A final critical consideration isthe parent company's long-termmission for the hrand. Given thecosts highlighted in the article, it ismore necessary than ever to extendonly those products that will ad-vance the hrand in the appropriatestrategic direction. Consider theexperience of a major materials com-pany, which had a hranded home-improvement product with line-extension opportunities in severalmarkets, including do-it-yourself,retail, wholesale, and institutionalmarkets. Only when the companyidentified the hrand's equity and fo-cused its efforts did the marketingdepartment have the direction itneeded to plan strategic product-lineextensions.

An appropriate line-extensionstrategy for a hrand requires the dis-cipline to evaluate the true costs, interms of both immediate economicconsiderations and long-term im-pact on brand equity. The managersof a successful hrand must develop aclear understanding of its key equityelements and implement guidelines

HARVARD BUSINESS REVIEW Ndvcnibcr-Dcccmber 1994

John Quelch and David Kenny Respond:Extensions must be carefully planned and monitored.

We are pleased that, in largepart, the respondents agree thatthe careful management of lineextensions is a vital issue. Unfor-tunately, a few of the participantsmisinterpreted our argument.Bruce Hardle and Leonard Lodish,for example, wrote that our arti-cle "may leave the impressionthat product-line extensions areall had and should he sharply cur-tailed." This is most definitelynot the case. We state in our arti-cle that line extensions can hestrategically sound and extreme-ly profitahle. Our emphasis was,and is, that such extensions musthe carefully planned and moni-tored. Poorly planned, excessiveextensions can be dangerous. Ourmessage is not a call for the endto line extensions hut a cautionagainst their unhridled use.

With an understanding of ourargument, several of the respon-dents offered valuable additionalanalysis and commentary. DavidAaker and others pointed out thatline extensions can reinforce orrejuvenate a hrand's image andenhance hrand equity among cur-rent and potential users. Line ex-tensions can also block the entryopportunities for competitors orraise the price of admission.

While our focus was on the hid-den costs of line extensions, sev-eral respondents, including LauraWicke, emphasized how poorlyplanned line extensions can in-crementally diminish a brand'sequity without this effect heingnoticed until it is too late. Alex-ander Biel correctly pointed outthat consumers can forgive andforget if weak line extensions arewithdrawn promptly. However,as John Balson ohserved, manycompanies lack the motivationand the cost data needed to sepa-rate the successes from the fail-ures clearly, and few prune theirproduct lines as aggressively asthey add to them.

Paul Farris correctly under-lined our goal of helping compa-nies steer "a course hetween vari-ety and redundancy." As DavidBeatty noted, the politics ofbrand-management career pathsand the need to preserve shelf fac-ings in view of the higher qualityprivate-lahel competition resultin too many line extensions heinglaunched in the hope that one ortwo will stick. The accompany-ing oversegmentation and a lackof logic in the product line in-evitahly diminishes a supplier'scredihility with tbe trade.

The frequency of line exten-sions is often a hetter measureof a company's desperation thanof its innovativeness. Constantpressure for the next line exten-sion reduces the resources avail-able for significant new productdevelopment. Many companiesfind it bard to persuade their bestmanagers to take tbe career riskinvolved in working on a big newproduct idea for two to threeyears. At the same time, somenew product ideas tbat, if proper-ly nurtured, could be launched assignificant entries are hijacked bymanagers of existing brands andmarketed suhoptimally as lineextensions.

A marketer 's imaginationshould not be constrained by anexcessive focus on either costcontrol or scanner data. Sucb fo-cus can greatly inhihit the mar-keter's ahility to conceive andbring to market the breakthroughnew products that can change theface of a product category. Weeontinue to believe, however,that marketers should be moredisciplined in adding only thoseextensions tbat enbance a hrand'sequity, have a clear strategic pur-pose, and, finally, add to a hrand'sprofitability.

for leveraging them in tbe market-place. If each line extension rein-forces the brand's equity, there is agreater chance of extending loyalty.

John B. BalsonPresident and CEOSandhill GroupJupiter, Florida

I have long douhted the marketingwisdom of most product-line exten-sions, which seem doomed to tail forone simple reason: they serve manu-facturers' needs rather than those ofconsumers. However, I helieve thatwe can better define the overall mar-

keting circumstances that explainthe difference between success andfailure in line-extension efforts.

Failures in line extensions comein all shapes and sizes. They includeforgettable items like light whiskeysand more notable failures like PepsiClear and McDonald's pizza, whicbmade little sense to consumers andhad almost nothing in common withthe image or benefits of the parentbrands. 1 would argue tbat evensome of the most publicized line-ex-tension products, such as Miller Liteand Diet Coke, have done consider-ahle long-term volume and market-share damage to their parent prod-

ucts. It is not inconceivable thatCoca-Cola and Miller might haveeven larger corjiorate consumer fran-chises today had tbey invested innew brands ratber than in product-line extensions.

Major prt)duct-line extensions of-ten breed paranoia in marketers.Questions concerning benefits, tar-get audiences, and levels of supportfor tbe centerpieces of a line heeomealmost impossible to resolve. Allmajor items usually suffer in thissituation because managers decidewbat to push hased on their fear ofcannihalization rather tban on con-sumer response.

60 HARVARD BUSINESS REVIEW November-December 1994

On the other hand, product-lineextensions can work when they ad-here to a well-thought-out strategy.The disinfectant Lysol, for example,proved that <i hrand can he extendedacross several categories - if a com-mon and important consumer bene-fit exists in both the products andconsumer perceptions, I call thisline-extension strategy "commonbenefit exploitation." Lysol was thegold standard in killing germs - abenefit with widespread householdapplications. Thus, Lysol was able tomarket products in several addition-al household-eleaning categorieswithout sacrificing volume or sharefor the parent hrand.

Line extensions can also increasea brand's consumer share of require-ments within a given product cate-gory - a strategy I call "real vari-ety need fulfillment." In the winebusiness, the varietal produet linemade by Mondavi is a perfect exam-ple of this strategy. Given the pro-clivity of heavy wine drinkers toseek variety in their varietal winechoice, it makes sense for Mondavito offer a range of consistentlyhigh-quality varietals to increase thebrand's share of requirements. [Myone caveat is that the marketermust build enough volume to offsetthe shelf-space, manufacturing, anddistribution cost inefficiencies dis-eussed in the article.)

Whether or not to extend a prod-uct line is, ahove all, a matter ofcommon sense. At a hare minimum,an extension must pass the simpletests of consumer benefit, share-of-

requirements growth, brand image,longevity, and activity-hased profits.Even then, he careful. The need forshort-term volume and profits canlead to long-term problems.

David A. AakerProfessorHaas School of BusinessUniversity of CaliforniaBerkeley, California

As Quelch and Kenny observe,there are risks associated with lineextensions, many of which are un-foreseen, underestimated, or ignored.But there are legitimate reasons forline extensions in addition to thosementioned hy the authors.

Energizing a Brand. A line exten-sion can he a way to make a hrandmore relevant, interesting, and visi-ble. In doing so, it can create a basisfor differentiation, build the audi-ence for the advertising of a tiredhrand, and stimulate sales. ConsiderHidden Valley Honey Dijon Ranchsalad dressing, which revitalized atired though healthy hrand. New andold customers had a new reason touse Hidden Valley.

Expanding a Brand's Core Promisefor New Users, A hrand may have astrong image that promotes loyaltybut is exclusionary. A line extensioncan expand that promise. HoneyNut Cheerios, for example, providedCheerios entry for those who boughtpresweetened cereals. In a similarway, the explosion of low-fat or non-fat line extensions breaks down har-riers to many users.

Managing True Innovation. Lineextensions can be a way to foster andmanage innovation, therchy enhanc-ing the value proposition, expand-ing the usage contexts, and hlock-ing competitive options. Glade AirFresheners started with aerosols andadded solid forms for continuousfreshening, clip-ons for the car, anda variety of more pleasing forms.

Blocking or Inhibiting Competi-tors. Although niche markets mayrepresent marginal businesses, theymay strategically represent impor-tant footholds for competitors. Lineextensions have the potential of in-hibiting or neutralizing competitormoves. Recall the horrible resultswhen General Motors, Xerox, andother companies permitted Japanesecompanies to gain a toehold at thelow end of their respective indus-tries hecause the returns did notmeet the financial criteria.

Managing a Dynamic Environ-ment. Line extensions provide a wayto survive in an environment full ofamhiguous and transitory signalsand forces. General Mills faces a riskin creating a new cereal fortifiedwith heta-carotcne and vitamin E.But it also faces the risk that such asegment may he a precursor to a larg-er trend that, if ignored, might gener-ate a strategically altered landscapewith a first-mover competitor hold-ing a considerable advantage. Imag-ine if an analysis of line-extensioncosts, as suggested by Quelch andKenny, inhibited Chrysler from in-troducing the minivan, which, hy allaccounts, has saved the company. ^

Reprint 94607

HARVARD BUSINESS REVIEW Nnvember-December 1994