You don’t have to go to Asia to find examples of rampant line extension.
More than 90 percent of all new products introduced in the U.S. grocery and drug trade are line extensions. Which is the major reason that stores are choked with brands. (There are 1,300 shampoos, 200 cereals, 250 soft drinks.)
Scanner data indicates that many of those line extensions (at least in supermarkets) sit on the shelf and gather dust. Research from Kroger supermarkets in Columbus, Ohio, found that of the average 23,000 items in a store, 6,700 sold in a day, 13,600 sold in a week, and 17,500 sold in a month, leaving 5,500 that sold nothing in an entire month.
This plethora of line extensions, in our opinion, is the reason for the increased demands from retailers for trade promotions, slotting fees, and return privileges.
According to industry experts, power has been shifting from manufacturers to retailers. The primary reason is line extension. With so many products to choose from, retailers can force manufacturers to pay for the privilege of getting their products on the shelf. If one company won’t pay, the retailer can always find another company that will.
No industry is as line-extended as the beer industry. Before the launch of Miller Lite in the mid-seventies, there were three major beer brands: Budweiser, Miller High Life, and Coors Banquet.
Today these three brands have become fourteen: Budweiser, Bud Light, Bud Dry, Bud Ice, Miller High Life, Miller Lite, Miller Genuine Draft, Miller Genuine Draft Light, Miller Reserve, Miller Reserve Light, Miller Reserve Amber Ale, Coors, Coors Light, and Coors Extra Gold.
Have these fourteen brands increased their market share over that obtained by the original three brands? Not really. There has been some increase, but no greater than what you might expect. Big brands always put pressure on smaller brands, in the same way that Coke and Pepsi have eroded the market share of Royal Crown Cola.
Has the availability of these fourteen varieties of Budweiser, Miller, and Coors increased beer consumption? No. Per capita beer consumption over the past twenty-five years has been relatively flat. (Cola consumption in the same period of time has almost doubled.)
When your customers are not exactly rushing out to buy your product, why would you need more brands to satisfy those customers? Logic suggests you would need fewer brands.
But that’s customer logic. Manufacturer logic is different. If volume is going nowhere, the manufacturer concludes it needs more brands to maintain or increase sales. When a category is increasing in sales, there are opportunities for new brands, but manufacturer logic suggests they’re not needed. “We are doing great, we don’t need any more brands.”
As a result, the marketplace is filled with line extensions in areas where they are not needed and is starved for new brands in areas where they are needed. Figure that one out.
Another reason for the rise in line extensions is a company’s natural instinct to copy the competition. Miller’s introduction of Miller Lite was quickly followed by Schlitz Light, Coors Light, Bud Light, Busch Light, Michelob Light, and Pabst Light. The light list is endless.
It’s painful to remember and so hard to forget. After the introduction of Miller Lite, we rushed around the brewing industry with a simple message: Keep your beer brand focused on the regular market. That will give you a leg up on Joe Sixpack, who consumes an awful lot of beer. (You can see how successful we were with our message.)
Why did Miller introduce Miller Regular, a brand which most beer drinkers have never heard of? Because Anheuser-Busch has regular Budweiser, Coors has regular Coors, and Miller didn’t have a regular beer.
Don’t laugh. This is the way companies think. The competition must know something we don’t know. Let’s do the same thing.
One reason 90 percent of all new brands are line extensions is that management measures results with the wrong end of the ruler. It measures only the success of the extension. It never measures the erosion of the core brand.
And it’s not just the erosion, it’s also the lost opportunities. Big powerful brands should have market shares approaching 50 percent, like Coca-Cola, Heinz, Pop-Tarts, Jell-O, and Gerber’s. But it’s hard to find more than a few such brands. Most big brands have been line-extended to death.
When Coors was planning the introduction of Coors Light, we asked one of its executives, “Where is the Coors Light business going to come from?”
“Oh, we’re going to take it away from Budweiser and Miller.”
When Budweiser was planning the introduction of Bud Light, the targets were Miller and Coors.
When Miller was planning the introduction of Miller Lite, the targets were Budweiser and Coors.
Maybe this concept is too complicated for the average CEO to understand, but isn’t the Coors Light drinker more likely to come from Coors? And the Bud Light drinker from Budweiser? And the Miller Lite drinker from Miller High Life?
Certainly the numbers substantiate this conclusion. Since the introduction of the three lights, the three regular beer brands have all declined substantially.
(And what can you say about Coors Rocky Mountain Spring Water? Born in 1990. Died in 1992. Mourned by no one. Not too many beer drinkers wanted to shift from beer to water.)
The market, you might be thinking, is shifting from regular to light beer. That’s true. But it’s really two markets, and the best way to capture those two markets is with two brands.
But there are no major beer brands that are not line-extended, you might have concluded. And you’re right. And what a wonderful opportunity for someone who understands the laws of branding.
Actually, until a short time ago, there was one: Amstel Light, which became the leading brand of imported light beer. So what did Heineken USA, the importer of Amstel Light, do next? It introduced Amstel Bier (regular beer) and Amstel 1870 beer.
Who drinks Diet Coke and Diet Pepsi? Do you really suppose that these diet cola drinkers used to drink beer, ginger ale, or orange juice? We don’t.
Diet Coke comes out of Coca-Cola’s hide. Sure, the diet cola market has boomed, thanks to the public’s interest in low-calorie products. But what Coca-Cola should have done was launch a second brand.
Actually it did. After the success of Diet Pepsi, Coca-Cola launched Tab. And Tab was doing quite well. The day Diet Coke was introduced, Tab was leading Diet Pepsi in market share by about 32 percent.
Now which is the better name: Diet Pepsi or Tab? If line extension is the superior way to build a brand, why did Tab lead Diet Pepsi by nearly a third?
Of course, Coke nearly killed Tab by keeping Nutra-sweet out of the brand and only using it in Diet Coke. But you can’t squeeze a good idea out of the marketplace. Tab still hangs in there with almost no promotional support.
When the low-fat craze hit the cookie market, almost every brand rushed out with a line-extended version of its regular cookie. As a matter of fact, the first fat-free cookie and early leader was Nabisco’s Fat Free Fig Newtons.
Nabisco also launched a new brand of fat-free cookie called SnackWell’s. Fat Free Fig Newtons were only a modest success, while SnackWell’s became the seventh-largest-selling grocery item, right behind Diet Coke.
So what did SnackWell’s do next? You already know the answer to that question. Put its name on everything except the kitchen sink. Naturally, SnackWell’s sales promptly plummeted.
The issue is clear. It’s the difference between building brands and milking brands. Most managers want to milk. “How far can we extend the brand? Let’s spend some serious research money and find out.”
Sterling Drug was a big advertiser and a big buyer of research. Its big brand was Bayer aspirin, but aspirin was losing out to acetaminophen (Tylenol) and ibuprofen (Advil).
So Sterling launched a $116-million advertising and marketing program to introduce a selection of five “aspirin-free” products. The Bayer Select line included headache-pain relief, regular pain relief, nighttime pain relief, sinus-pain relief, and a menstrual relief formulation, all of which contained either acetaminophen or ibuprofen as the core ingredient.
Results were painful. The first year Bayer Select sold $26 million worth of pain relievers in a $2.5 billion market, or about 1 percent of the market. Even worse, the sales of regular Bayer aspirin kept falling at about 10 percent a year. Why buy Bayer aspirin if the manufacturer is telling you that its “select” products are better because they are “aspirin-free”?
Are consumers stupid or not?
Many manufacturers are their own worst enemies. What are line extensions like light, clear, healthy, and fat-free actually telling you? That the regular products are not good for you.
Should Evian launch Sulfate-Free Evian spring water? (Check the label, there are 10 mg of sulfates in a liter of regular Evian. There are probably people out there who would like a sulfate-free version of the brand.)
Let sleeping brands lie. Before you launch your next line extension, ask yourself what customers of your current brand will think when they see the line extension.
If the market is moving out from under you, stay where you are and launch a second brand. If it’s not, stay where you are and continue building your brand.