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How Can I Make My Line Extensions More Incremental?
Line Extensions as Drivers of Incremental Volume 10/13/2003 -- Manufacturers commonly look to new product line extensions as a way to grow the business. They are an even more important part of the portfolio today as companies focus on fewer main brands. However, the only way a line extension will drive growth is if it brings incremental sales into the franchise. So how good are line extensions at driving incremental volume? A few years ago, BASES addressed this question by evaluating the performance of 80 line extension launches. One of the most surprising findings was that nearly 25 percent of these line extensions failed to grow the total franchise! By contrasting the line extensions that grew the franchise versus those that provided no growth, BASES has discovered four main factors that prevent line extensions from being incremental. The first factor is consumer perceptions of substitutability. Not surprisingly, the least incremental line extensions are products that consumers believe are highly substitutable for the parent brand. The more differentiated the line extension is from the other products in the brand franchise, the better opportunity for overall franchise growth. The second factor is the transaction size of the line extension. Line extensions that shrink the franchise are often sold in smaller sizes or generate fewer units purchased on each occasion than the parent brand. The amount of marketing support that is "borrowed" from the parent brand is the third factor impacting line extension incrementality. Often the dollars that are used to support the line extension come at the expense of parent brand support. The more marketing support borrowed from the parent brand, the less likely the line extension is to grow the franchise. Click on thumbnail to enlarge, or click here. Finally, the fourth factor deals with the amount of distribution that is stolen from the parent brand. Line extensions that grow the franchise are able to gain incremental distribution in market whereas those that shrink the franchise are less likely to find new space on the store shelf. Based on these learnings, BASES developed Franchise Growth Analysis, a modeling tool used to estimate the incrementality of a line extension before launch. Franchise Growth Analysis accounts for these four key factors of incrementality to provide a total analysis of growth potential. The resulting model is strongly predictive and shows no systematic bias. Click on thumbnail to enlarge, or click here. For more information about how ACNielsen BASES can help measure incrementality or for information about ACNielsen BASES in general, please contact Joe Sebranek at Joseph.Sebranek@BASES.com or 312.583.5506. ------------- Appeared in Facts, Figures, and the Future Magazine, © October 2003. |
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