What we’re talking about
Product line extension (also known as expansion) involves a business adding a new product to one of its pre-existing product lines. That might mean launching a new item or service into one of your existing categories (eg a jewelry brand designing a new bracelet), a new version of an item or service you already sell (eg using different colours, materials or sizes), or a new tier or price plan to a service you already offer. If you’re experiencing stagnation in sales or you’re thriving and ready for growth, a product line extension might be just what’s needed.
Why it’s important
This is a low-risk way of extending the life cycle of your product or service – and business in general. It allows you to make use of what you know about your customers, what you know you’re good at, and the network of suppliers and distributors you’ve already built up; you’re only betting on a handful of unknowns. Having more options in a particular product category gives you a competitive advantage as your customers have a greater selection of products to choose from.
But that doesn’t mean it’s risk free. Getting it wrong means wasting cash and resources and potentially damaging your brand’s image and reputation. Research from Harvard Business School suggests the biggest problem companies encounter when launching a new product is lack of preparation. You’re putting a lot into this, so you need to research and plan it properly. As a small business, it’s especially hard to bounce back after a new product flop.
Things to note
There’s a difference between product extension and brand extension. Brand extension is when you grow your business into new areas – offering either a new product in a new category that just uses the brand name, or expanding the business into new territories. With a high failure rate of brand extension (around 80% according to this study) you might, as a small business, be tempted to stick with the usually cheaper and logistically easier option of product line extension. However, brand extension should be considered as an alternative. You might offer a tried-and-tested service in a new country, or launch a new set of products that naturally accompany those you manufacture already.
Don’t accidentally devalue the products you already sell. Cannibalisation, as it’s quite dramatically called, occurs when sales of your new product negatively impact the sales of your existing products. Generally, you don’t want this. More products, catered to the demands of specific audiences, should be leading to more revenue. For example, if you’re offering one product at a premium price point but decide to make a more affordable version, you don’t want everyone buying that cheaper product instead. Sometimes, though, you might want to be proactive about eating into your old offering – by putting out upgrades, for example.
Think about pricing early on. As demonstrated above, you should be thinking about pricing in the planning stage – not whacking on a number that feels right once the new product has been made. Refer to our guide to pricing strategy for help on the specifics, but the key is to decide whether you’re going to stretch your product or service horizontally or vertically. Horizontally means keeping price and quality the same; vertically means changing quality and therefore price.
How to plan a product line extension
1. Analyse your existing product or service range. Get clear on where you’re at as a business, so you don’t expand without the cash to do so. Check key metrics on your existing products, like profit margin or monthly revenue – a more comprehensive list is below. Survey your customers for more personalised feedback, polling them about specific features or browsing your reviews to find recurring themes.
2. Touch base with your brand identity. Define the values you won’t depart from to make sure you don’t dilute your brand. Think about what elements of your values you’re currently getting right, and how you can capitalise on that.
3. Consider wider consumer or market trends. Now look outwards. You might be able to get a big-picture perspective of your market by media coverage, industry influencers, industry reports, VC investment or social media trends. If you’re operating in a market that’s thriving, or if you spot a trend you can jump on, product line extension will help you make the most of demand.
4. Check out your competition. Identify other key players in the market. Get clued up on the new products your competitors – of all sizes – are launching. What does this say about market trends? Are you likely to lose sales if you don’t keep up, or would it be a mistake to plough money into an extension if a big corporate is about to offer the same for cheaper?
5. Define who you’re targeting. By now, you should be pretty clear on whether your product line extension will be geared towards gaining new customers, keeping current ones satisfied or a bit of both. Confirm your target audience and then zoom in on them, taking into account your customer feedback research. For example, think about the people who follow your social accounts but have never purchased anything; or those who have asked for items you haven’t previously had.
6. Confirm it’s the right move. Take a moment to make sure there’s actually a gap that needs filling – and that brand extension isn’t a better fit for your business. For example, maybe the biggest trend you’ve identified is businesses in your sector making waves in another sector; maybe the people who use your website or service are looking for physical merch instead.
7. Consider your options. It’s likely there is more than one thing you could do to freshen up your business offering. Pick the three most compelling gaps and take some time to consider all of them. You want to land on a line extension that will meet recurring consumer demand or lead to the most growth. Get your team together for a brainstorming session, listing potential options with their associated pros and cons. See the examples we’ve linked to below for inspiration.
8. Work out your capabilities: both internal and external. Size up the capabilities and particular strengths of your team, as well as those of your suppliers, manufacturers and distributors. It might not be worth designing an extravagant new product if you’re attached to a particular factory and there’s no chance it’ll be able to make it for you. This is also a sensible point to start discussions around pricing, tailoring your solutions to how much you’re willing to spend and how much you want to get back.
9. Finesse your product line extension strategy. It’s time for… yes, a little more research. Your team planning session should have thrown up a few viable options. Check what you’ve come up with against your previous analysis of customer feedback and market research and make sure it aligns with your business’ values and goals. Ultimately, you need to decide on the product line expansion that ticks all the above boxes.
• Product line extension can help small businesses stay relevant to existing clients, bring in new ones, and increase their sales revenues.
• You’ll need to gather lots of intel on your customers, wider trends and competitors, and use it to identify a problem that you can realistically solve.
• It’s essential you don’t devalue the products you already sell and eat into your sales revenue from other areas.
Perspective. In this succinct LinkedIn blogpost, Sorin Patilinet gives his tips on deciding whether a product line expansion is right for your brand.
Tool. Courtesy of UserGuiding, here are some helpful metrics for product performance that you can incorporate into product evolution.