May 1, 2008
Kraft Keeping Brands From Getting Over-Extended
There’s a certain comfort in brand extensions. Consumers are already familiar with the name and have developed (presumably) a confidence in what the brand means in terms of quality, price, etc., making it easier to induce trial.
On the other hand, simply adding additional ingredients to an existing product often means that the item is not radically innovative.
In the end, extensions often bring too little in the way of incremental sales as consumers trade-off within a product line. In the worst-case, a proliferation of items under a single brand only serves to dilute equity and ultimately cause sales to decline.
As a piece on the Brandweek website points out, Kraft Foods has rolled out a large number of brand extensions in recent years with less than spectacular results.
Not looking to continue with a failed strategy, Kraft Foods management, led by chairman and CEO Irene Rosenfield, is in the process of rolling out 80 new products but no one at the company is using the “e” word.
“A line extension is usually a new flavor or size that may create some news but it doesn’t grow the business,” Bob Becker, senior vice president of new products at Kraft Foods North America, told Brandweek. “We’re talking to consumers more than we ever have and we’re trying to bring more products that fit with what consumers want. That will help us grow our customers’ business [retailers] and ultimately our business.”
Last week, Mr. Becker told Crain’s Chicago Business, “We are spending much more time and focus on reinventing our iconic brands.”
So does reinventing a brand mean that it’s not a line extension? The answer from Mr. Becker and Kraft is clearly, “Yes.”
A case in point is a new beef frank under the Oscar Mayer label that is made with higher grades of meat and contains no artificial flavors, colors or fillers. The appearance of the hot dog is distinctly different than the original version.
Of course, while Kraft may not be using the “e” word itself it is hard to make the case that the new products are fully brand-extension-free.
Kraft is taking its Crystal Light beverage brand, for example, into the area of functional beverages with products including Crystal Light Focus, Crystal Light Metabolism and Crystal Light On the Go Vitamin Enhanced Red Tea Mix.
Still, the CPG giant seems intent when using a single brand to try and carry it over to other categories rather than cannibalize sales within an existing business.
Tom Chapman, senior partner at Landis Strategy and Innovation, told Brandweek, “The food business constantly has to delight people with new stuff. That’s just the nature of that business so product improvement is mandatory. Line extensions probably are too, and category extensions done well are typically the way you make more dramatic changes in your business by either reaching totally new groups of consumers or totally new occasions of use.”
Discussion Questions: How critical are new products to CPG and retail growth? Where do you come down on the value (or lack of value) on brand extensions in the new product equation? What are the keys at retail to maximizing new product performance?
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I don’t think there is a rule of thumb re: line extensions–I’ve seen ones that work and ones that don’t. To me, this is a consumer question, to be decided by research, as to whether an extension is helping the brand (critical), helping the category (that would be nice), and filling a need/niche.
Putting out extensions that serve a flavor rotation function or as an excuse to do more advertising has some value, but not in the sense of building brand equity.
I would only add that I am particularly taken by Joel’s comments. Brand integrity must be paramount, with any extension consistent with a brand’s mission, positioning, and value proposition.
There appears to be a confusion between product improvements and brand extensions.
A brand extension should increase the consumers’ participation with the franchise with the addition of functions to the brand. For example, if you have a toothpaste brand extend it with a line of floss.
To simply alter the product slightly is NOT a brand extension. Anytime the altered, or improved, product is on the shelf it will cannibalize the previous product and defeat the purpose of an extension. It is critical for a CPG company to properly develop brand extensions organic to the original brand that will extend the brand footprint in the consumer’s life and strengthening the brand relationship in the process.
What is innovation? Oscar Mayer’s franks with no fillers may be new to the Oscar Mayer brand, but the product isn’t a market innovation. Other brands got that product to the market long ago.
And it’s easy to be a critic. Oreo’s in 9 flavors didn’t expand the total sales volume? Who knows what would’ve happened if there were no new flavors? Maybe Oreo sales would’ve declined. Great breakout innovation, inventing a new profitable and sustainable category, comes along very rarely. How many Swiffers have there been in the past decade? 99.99% of the time, “new” means a different size, a different fragrance, a different flavor and/or a me-too copycat positioning, like “no artificial ingredients” or “low sodium” or “low fat.” Trying to stop brand extensions is like trying to hold back the Tide.
The lifetime value of brand extensions quickly erodes when they are left on the shelf to languish and die. We need more discipline and rigor–as manufacturers and retailers–in managing extensions through their life cycle, pruning those that are destroying value, and localizing assortments where there is still life in the items. Smart Assortment will simplify the shelf, allow additional facings on the core items to reduce stock-outs, ease replenishment to lower costs and deliver a better shopping experience to delight consumers.
Line extensions can hurt existing brands if the manufacturer does not secure incremental space for the new products. Too often, a line extension’s first new home on the shelf is achieved by cutting a facing from its older brother. This reduction in shelf holding capacity creates out-of-stocks on the main product.
Kraft learned the hard way; look what they did to Oreo’s. Nine iterations of flavors introduced over a period of time reduced their pack out on the core item. Center store is not getting larger; there is no ever-increasing shelving for product assortment.
I agree with Stephen, there is no rule of thumb. Some work and some don’t. Hershey has a lot of examples that have worked and that haven’t. Brand extensions should be thought through thoroughly and tested in focus groups before betting the farm on the outcome.
In product marketing, moderation can be a fatal thing. Usually nothing succeeds like excess–that is until excess leads to a new palace of wisdom, which says “this isn’t working anymore.”
What Kraft is now doing is what they should be doing, searching for things that aren’t extensions of old things.
I do agree that brand extensions dilute brand equity (what the heck does Mr. Clean sell now?!). Unfortunately, it is the cheapest and quickest way to bring new products to market. When manufacturers are unsure of the potential success of a new product, brand extending is a way to slowly launch the product to get marketing feedback and test the waters. We need to be careful because customers are getting confused as to which brand does what (see my brand reference above) and shelf space is not an infinite commodity.
The strategy for growth at many CPG companies is line extensions. If they did not drive sales in some way, they would not be doing them. They frequently take shelf space away from competitors and block new, smaller brands from getting into stores.
On the other hand, supermarkets are becoming more crowded and take longer to navigate to find the items a consumer wants to purchase. Earlier this week we discussed grocery stores that stock fewer items. Which format will win out? Consumers will tell us which they prefer through their shopping habits. One thing we know for sure, consumers do not currently relish the time they spend in supermarkets.
In one of my career iterations, I ran the number two competitor to BASES and we introduced the first line extension forecasting model. As such, I test a ton of line extension ideas.
The basic paradox is this: A line extension strategy SEEMS TO BE A NO BRAINER but that is very misleading. The specific product is much less risky than a totally new brand so it is more likely to succeed and it requires less marketing funds to launch. It often is a way of sucking up excess plant capacity and offering something new to the trade to refresh the shelf.
On the other hand, this strategy can do serious damage to the long-term health of the parent brand. First, it locks you into incrementalism rather than innovation. Secondly, it puts you in a product-centric rather than consumer-centric mode. Third, as you stretch for ideas, you can create a Frankenstein’s monster of a brand where someone with a fresh eye will look at the brand and feel like it doesn’t stand for anything and is just a bunch of spare parts.
I’m not saying all line extensions are bad, only that line extensions must be accompanied by a relentless vision of what the brand needs to be in its service to its consumers. I applaud Kraft for taking the long-term view of brand success and resisting the temptation.
A successful new product starts off being fewer things to fewer people. That’s what gives the new brand its allure and rapid growth appeal. It is only when managers try to make the new brand more things to more people that the rapid growth phase diminishes and mature earnings set in. Contact me to discuss examples such as Starbucks, Staples, etc.
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I don’t think there is a rule of thumb re: line extensions–I’ve seen ones that work and ones that don’t. To me, this is a consumer question, to be decided by research, as to whether an extension is helping the brand (critical), helping the category (that would be nice), and filling a need/niche.
Putting out extensions that serve a flavor rotation function or as an excuse to do more advertising has some value, but not in the sense of building brand equity.
I would only add that I am particularly taken by Joel’s comments. Brand integrity must be paramount, with any extension consistent with a brand’s mission, positioning, and value proposition.
There appears to be a confusion between product improvements and brand extensions.
A brand extension should increase the consumers’ participation with the franchise with the addition of functions to the brand. For example, if you have a toothpaste brand extend it with a line of floss.
To simply alter the product slightly is NOT a brand extension. Anytime the altered, or improved, product is on the shelf it will cannibalize the previous product and defeat the purpose of an extension. It is critical for a CPG company to properly develop brand extensions organic to the original brand that will extend the brand footprint in the consumer’s life and strengthening the brand relationship in the process.
What is innovation? Oscar Mayer’s franks with no fillers may be new to the Oscar Mayer brand, but the product isn’t a market innovation. Other brands got that product to the market long ago.
And it’s easy to be a critic. Oreo’s in 9 flavors didn’t expand the total sales volume? Who knows what would’ve happened if there were no new flavors? Maybe Oreo sales would’ve declined. Great breakout innovation, inventing a new profitable and sustainable category, comes along very rarely. How many Swiffers have there been in the past decade? 99.99% of the time, “new” means a different size, a different fragrance, a different flavor and/or a me-too copycat positioning, like “no artificial ingredients” or “low sodium” or “low fat.” Trying to stop brand extensions is like trying to hold back the Tide.
The lifetime value of brand extensions quickly erodes when they are left on the shelf to languish and die. We need more discipline and rigor–as manufacturers and retailers–in managing extensions through their life cycle, pruning those that are destroying value, and localizing assortments where there is still life in the items. Smart Assortment will simplify the shelf, allow additional facings on the core items to reduce stock-outs, ease replenishment to lower costs and deliver a better shopping experience to delight consumers.
Line extensions can hurt existing brands if the manufacturer does not secure incremental space for the new products. Too often, a line extension’s first new home on the shelf is achieved by cutting a facing from its older brother. This reduction in shelf holding capacity creates out-of-stocks on the main product.
Kraft learned the hard way; look what they did to Oreo’s. Nine iterations of flavors introduced over a period of time reduced their pack out on the core item. Center store is not getting larger; there is no ever-increasing shelving for product assortment.
I agree with Stephen, there is no rule of thumb. Some work and some don’t. Hershey has a lot of examples that have worked and that haven’t. Brand extensions should be thought through thoroughly and tested in focus groups before betting the farm on the outcome.
In product marketing, moderation can be a fatal thing. Usually nothing succeeds like excess–that is until excess leads to a new palace of wisdom, which says “this isn’t working anymore.”
What Kraft is now doing is what they should be doing, searching for things that aren’t extensions of old things.
I do agree that brand extensions dilute brand equity (what the heck does Mr. Clean sell now?!). Unfortunately, it is the cheapest and quickest way to bring new products to market. When manufacturers are unsure of the potential success of a new product, brand extending is a way to slowly launch the product to get marketing feedback and test the waters. We need to be careful because customers are getting confused as to which brand does what (see my brand reference above) and shelf space is not an infinite commodity.
The strategy for growth at many CPG companies is line extensions. If they did not drive sales in some way, they would not be doing them. They frequently take shelf space away from competitors and block new, smaller brands from getting into stores.
On the other hand, supermarkets are becoming more crowded and take longer to navigate to find the items a consumer wants to purchase. Earlier this week we discussed grocery stores that stock fewer items. Which format will win out? Consumers will tell us which they prefer through their shopping habits. One thing we know for sure, consumers do not currently relish the time they spend in supermarkets.
In one of my career iterations, I ran the number two competitor to BASES and we introduced the first line extension forecasting model. As such, I test a ton of line extension ideas.
The basic paradox is this: A line extension strategy SEEMS TO BE A NO BRAINER but that is very misleading. The specific product is much less risky than a totally new brand so it is more likely to succeed and it requires less marketing funds to launch. It often is a way of sucking up excess plant capacity and offering something new to the trade to refresh the shelf.
On the other hand, this strategy can do serious damage to the long-term health of the parent brand. First, it locks you into incrementalism rather than innovation. Secondly, it puts you in a product-centric rather than consumer-centric mode. Third, as you stretch for ideas, you can create a Frankenstein’s monster of a brand where someone with a fresh eye will look at the brand and feel like it doesn’t stand for anything and is just a bunch of spare parts.
I’m not saying all line extensions are bad, only that line extensions must be accompanied by a relentless vision of what the brand needs to be in its service to its consumers. I applaud Kraft for taking the long-term view of brand success and resisting the temptation.
A successful new product starts off being fewer things to fewer people. That’s what gives the new brand its allure and rapid growth appeal. It is only when managers try to make the new brand more things to more people that the rapid growth phase diminishes and mature earnings set in. Contact me to discuss examples such as Starbucks, Staples, etc.