Careful Market

To fight against all this short comings that are caused by product line extension, Quelch and Kenny (1994) gives some checklist or guidelines for improving product line extension strategies. They involve allocating adequate resources to the most popular products, improving on the cost accounting, proper coordination of all the marketing efforts, generating and fostering a good environment in which product-line deletions are fully supported, a thorough research on consumer behavior is vital and finally and not the least always working with channel partners.

As the authors have illustrated in a case study that involved "Snackco's Fall and Rise," companies which had put great emphasize on product line extension, it was quite evident that if the above mentioned checklist is followed strictly, product line extension can result to generating more profits as well as increasing the sale volumes thus beating competition perfectly. Different marketing experts has given their views concerning logic of line extension and product line management (Kadiyali et al. , 1999; Roedder et al. , 1998; Quelch and Kenny, 1994). In their views, product line extension together with marketing and cost accounting always go hand in hand. However, if this statement is not analyzed critically, it may give an expression that product line extensions are critical and are not good which calls for sharp curtailing. This may be true to some companies and not true to others. Actually, with proper cost accounting and putting into place good market-research system, product line extension can results to increase of the company profitability.

Let us take an example of a case study involving Doritos product line of chips, their sales volumes increased to more than $1 billion after Cool Ranch Doritos product line was successfully extended. Moreover, line extension of their diet and caffeine free increased their soft drink market which introduced additional new segments with the two and three liter bottles stimulating consumption since when many household buys them and put them in the refrigerator, they will eventually be consumed. Looking at the automobile industry, the Ford Explorer and the Chrysler minivan have acquired new profitable market segments which are synergistic to the previous ones (Quelch and Kenny,1994). In most cases, introduction and development of product line extension has been a competitive reality. As the various product lines evolve, the firm must be in a position of continuously adapting its product lines so that they can match the dynamic and always changing market demands and trade intermediary conditions together with coping competition thus maximizing their profit margins.

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Quelch and Kenny (1994) urges that, successful product line extension and proper management of products calls for improvement in supply–side information as well as demand–side information. By use of careful market research, product managers should be in a position to answer questions like: will the sales increase if we launch a specific product as a line extension? Do we expect any cannibalization if we launch a product line extension and how much do we expect? How many customers do we expect to lose if we happen to drop a specific stock keeping unit (SKU)?

Generating such information is not an easy task neither is it a cheap exercise but it is very vital for the success of product line extension. Quelch and Kenny emphasizes on resource allocation to winners which in other words means application of the zero-based budgeting when assigning retail space, promotional and advertising dollars and sales force time. Much testing, analysis and experimenting are vital when determining the impact of promotion and advertising on short term and long term profit. Coming up with such programs as well as analyzing their end results is quite complicated and difficult endeavor that calls for an expert.

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