Extend Profits Not Product Lines

To compete successfully in today’s volatile and competitive business markets, mass marketing is no longer a viable option for most companies. Marketers must attack niche markets that exhibit unique needs and wants. Market segmentation is the process of partitioning markets into groups of potential customers with similar needs or characteristics who are likely to display similar purchase behavior.

Market segmentation is the foundation on which all other marketing actions can be based. It requires a major commitment by management to customer-oriented planning, research, implementation, and control.

The overall objective of using a market segmentation strategy is to improve your company’s competitive position and better serve the needs of your customers. Some specific objectives may include increased sales, improves market share, and enhanced image.
The authors, John A. Quelch and David Kenny do confess the “lure” of product line extensions. Line extensions come closer to meeting the needs of smaller and smaller market groups. Such products allow for “something different”. They sanction pricing breadth, aiming higher prices at select markets, with “superior” quality. They aid in fixing the excess capacity many firms are experiencing today. They offer short-term (short-lived) gain at low cost, catering to the desires of today’s managers. They help to assure sufficient shelf space. Product line extensions also help to meet retailer’s demands, providing packaging that will suit their particular marketing needs.

Today, more than ever, the ability to develop and launch new products successfully and quickly is the key to business success. What makes a new product a success? What can be done to improve the odds of winning at new products in your company?
A highly regarded success factor is product superiority. Premium products that deliver real and unique benefits to users are far more successful that “me too” products. It is impossible to pursue every market opportunity so you must make strategic choices based on customer needs, competitive opportunities, corporate objectives, and your firm’s financial, technical, and marketing resources.

You may accomplish an effective position by searching out unique marketing advantages, seeking new market segments that competitors are not, or developing new approaches to old problems. Your position must be based on real (e.g., lower cost, superior quality) or intangible (e.g., company reputation) competitive advantage.
Product positioning is an important strategy for achieving differential advantage. Positioning reflects the “place” a product occupies in a market or segment. A successful position has characteristics that are both differentiating and important to consumers.

Every product has some sort of position-whether intended or not. Positions are based upon consumer perceptions, which may or may not reflect reality. A position is effectively built by communicating a consistent message to consumers about the product and where it fits into the market-through advertising, brand name, and packaging.

Positioning is inextricably linked with market segmentation. You can’t define a good position until you have divided the market into unique segments and selected your target segments.

The most important assets of any business are intangible-including its base of loyal customers, brands, symbols, and slogans-and the brand’s underlying image, personality, identity, attitudes, familiarity, associations, and name awareness. These assets-along with patents, trademarks, and channel relationships-comprise brand equity, and are a primary source of competitive advantage and future earnings.

The brand is a distinguishing name and/or symbol (logo, trademark, or package design) intended to identify the origin of the goods or services-and to differentiate those goods or services from those of competitors. A brand signals to the customer the source of the product-and protects both the customer and producer from competitors who would attempt to provide products that appear to be identical.

By developing strong and consistent images, well-regarded brands generate hidden assets-or brand equity-that give them distinct advantages. Brand equity is a form of wealth that is closely related to what accountants call “goodwill”.

A brand is a promise made to its customers and shareholders. Promises that are kept yield loyal customers and produce steady streams of profits. Brand equity is initially built by laying a foundation of brand awareness-eventually forming positive brand images-and is ultimately maximized by high levels of brand loyalty.

Brand image is everything. It is the sum of all tangible and intangible traits-the ideas, beliefs, values, prejudices, interests, features, and history that make it unique. A brand image visually and collectively represents all internal and external characteristics-the name, symbol, packaging, literature, signs, vehicles, and culture. It’s anything and everything that influences how a brand or a company is perceived by its target constituents-or even the individual customer.
Brand image may be the best, single marketable investment a company can make. Creating or revitalizing a positive brand image is a basic component of every business-and lays a foundation on which companies can build their future. With this in mind, it is critical to the welfare of the business that a line extension idea is efficiently evaluated-success being assured-before takeoff.

It is obvious why line extensions can be so tempting and are so popular, but too often the additions to the line do not receive the careful management essential. Product line extensions do serve as a fine decoy, but up they are often not as charming. Many times line extensions confuse customers, yielding weak line logic. They lower brand loyalty by inviting customers to try “something different” from what they have been using all along, which is the real definition of brand loyalty. Managers may actually harm a potentially profitable idea by thinking short-term risk management instead of long-term capacity. Line extensions fail to increase demand; you are not encouraging more frequent use of the product, instead you are dispersing the consumer over the entire category. When customers are not able to make sense of the product and are unclear about its benefits, it tends not to sell. Retailers do not have shelf space to spare for slow-moving products. Often times extensions are underexploited product ideas and they may give a competitor the opportunity to develop his or her own strategy. On top of it all, they tend to carry with them hidden costs including poorly focused application, production complexities, logistics complexities, higher supplier costs, and deviation from research and development of new products.
In illustration of how to create a profitable, workable market strategy, the authors use a snack foods company, “Snacko”. An “action agenda” is proposed in an attempt to harmonize the conflicting motives. Improve cost accounting; understand and evaluate the absolute and incremental costs associated with production and distribution. Balance support to benefit winners; try to stay away from favoring core brands. Research consumer behavior; you want to learn how the customer perceives and uses each item. Apply a line logic test; make sure that your salespeople are able to state a strategic role for each item in the product line. Coordinate marketing efforts across the line; in an effort to be more clear and convincing, price your brand consistently. Work with channel partners; develop teams within the firm so that you can work efficiently at producing a winning product. Expect product line turnover; anticipate product line deletions-keep it simple or you will incur costs. Manage the deletions; deletions allow for the better management of new items, but be aware of costs associated with taking a product off the line.

Ultimately, it comes down to what you know. You need to be aware of how marketing is done effectively and efficiently. Check your motives-are you in this business for quick cash or to satisfy. There is a lot of money to be made out there, but if you are not careful, there is just as much-or more-money to be lost. It is no longer about your share of the shelf space-it’s about profit.


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