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Mark
Lagrois
Vice President
ACNielsen BASES Asia Pacific
In the FMCG world
today, manufacturers invest much of their marketing resources
on leveraging their existing brand assets. This typically
means extending these brands into new varieties, sizes or
even entirely new categories. The true measure of success
for these line extensions is not just how much business they
create for the marketer, but how much of this business is
incremental to the existing brand. By this measure, some line
extensions do well, but others fail. The critical question
then becomes: what distinguishes the successes from the failures?
Why do some line extensions succeed while others fail? And
perhaps most importantly, how can these answers help marketers
better manage the launch of line extension initiatives?
ACNielsen BASES, the leading supplier of simulated test marketing
services globally, assembled a unique database to address
these questions. This database consisted of line extension
initiatives that were studied by BASES and subsequently launched
into the market. This database included consumer response
to these line extension propositions from the BASES studies,
combined with sales data and marketing plan details for both
the line extension and the existing parent brand. The analysis
included launches representing 26 categories and 15 different
marketers.
Not All Line Extensions Are Created
Equal
When we examined this database we found that on average, line
extensions were successful at building incremental sales for
their parent brand. In fact, total expanded range sales (the
line extension plus the existing parent brand) for the year
of the line extension launch indexed at about 111 compared
to parent brand sales for the prior year. While this was the
typical outcome, we also noted that there was an enormous
difference between the best case and worst case scenarios
in the database. In the best case, sales for the expanded
range were more than twice the level recorded for the parent
brand during the previous year. In contrast, the worst case
actually saw sales for the expanded range decline after the
launch of the line extension. Clearly, this worst case would
represent a disappointing outcome for any marketer.
What
Separates the Good From the Bad?
To better understand why some line extensions do a better
job than others at building incremental volume, we separated
the database into several groups based on how effectively
they increased total expanded range sales. The expanded range
is defined as sales for the existing parent brand plus the
line extension for the year of the line extension launch.
These sales were then compared to existing parent brand sales
for the year prior. The three groups are:
- Brand Shrinkers: Line extensions that lowered expanded
range sales
- Brand Growers: Line extensions that grew expanded range
sales by up to 20%
- Mega-Successes: Line extensions that grew expanded range
sales by 21%+.
We then compared and contrasted these groups on a number of
important factors, the first being cannibalisation. This seemed
like a good place to start, as marketers often think that
the ability of line extensions to generate incremental volume
is determined completely by cannibalisation. They ask themselves,
how many of the buyers for my line extension will be stolen
from my existing business? If the answer is “not many”,
they assume that their line extension will succeed in building
incremental sales.
For this analysis,
we determined cannibalisation levels based on the results
of the BASES study. In each BASES test, we measure the proportion
of transactions for the line extensions that will be sourced
from the existing parent brand. In other words, how much of
the line extension sales will be generated as a result of
consumers buying the line extension instead of the parent
brand. When we compared the three groups on this measure,
we saw that the Brand Shrinkers were more likely to source
transactions from the existing parent brand business, while
the Mega-Successes were least likely to do so.
Is That It?
In addition to cannibalisation,
we also looked at several other factors that distinguish those
line extensions that succeeded in building incremental sales
compared to those that failed. One of these was how unique
the line extension was relative to current brands in the marketplace.
This measure of uniqueness again came from the BASES study,
where we ask consumers to rate how new and different the line
extension is compared to other products available in stores
today. What we found was that the Mega-Successes had an average
uniqueness rating that was greater than the Brand Growers.
And, the Brand Growers were perceived to be more unique than
the Brand Shrinkers.
In addition, we examined the difference in the average transaction
sizes between the line extension and the parent brand. In
other words, how much product do people bring home on each
purchase for the line extension vs the existing parent brand?
When we compared the three groups on this measure, we did
indeed identify a relationship. The Mega-Successes had median
line extension transaction sizes that were bigger than their
existing brand parent brand. This meant that even if these
Mega-Successes cannibalised from their parent brand, they
were at least trading them up to a larger purchase. While
the Brand Growers had transaction sizes that were smaller
than the parent brand, they were still larger than the Brand
Shrinkers.
Next we looked at how the line extension launch was funded
by the manufacturer. Specifically, how much of the budget
was ‘borrowed’ from the parent brand and how much
was additional support? Here we found a substantial difference
among the three groups. The Brand Shrinkers sourced a much
larger proportion of their marketing support budget from their
parent brand than either the Brand Growers and the Mega-Successes.
In fact, there was a strong relationship between the proportion
of ‘borrowed’ support and incremental volume.
Those line extensions supported with incremental marketing
spending were also more likely to generate incremental sales
in the marketplace.
What
Have We Learned?
This analysis reveals some very important learnings. First,
it confirms what many would already suspect – that not
all line extensions succeed at their mission of creating incremental
sales. Perhaps more importantly, it gives us some insight
into the reasons why. Those line extensions that succeed tend
to:
- Be supported by incremental rather than ‘borrowed’
marketing support
- Be well differentiated from the parent brand in order
to attract new buyers
- Encourage consumers to ‘upsize’.
This is instructive
for marketers, and makes it clear that their own marketing
strategies have a big impact on how well they succeed at generating
incremental sales. Marketers need to recognise the consequences
of their decisions – for example, funding a line extension
with ‘borrowed’ spending may seem like an attractive
budget option, but the result in the marketplace is less incremental
sales. Similarly, a smaller and cheaper package may help entice
consumers to try a new line extension, but the ‘down
sizing’ that results also has negative implications
for incremental volume potential.
Building New Tools
The insights from this analysis were also instrumental in
helping BASES create a new tool to help our clients make better
decisions regarding line extension propositions. This service,
BASES Franchise Growth Analysis (FGA), is designed to forecast
incremental sales for line extensions. The FGA model takes
into account all of the variables that BASES found to be predictive
of incremental volume, including consumer behaviour (such
as cannibalisation) in addition to the marketers own strategy
(such as how much of the line extension budget will be borrowed
from the parent brand). The FGA analysis is a standard part
of all BASES I and BASES II Line Extension studies.
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