Small ball: Marketers rely on line extensions

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After years of swinging for the fences, package-goods players are turning into slap-hitting singles and doubles by pumping out ever-higher numbers of line extensions rather than new brands and categories.

Unlike with baseball, however, the mysterious transformation has nothing to do with steroids. Instead, it may owe to marketers trying to lay off another kind of juice-marketing spending-as well as playing it safe in the name of career advancement.

CHEAPER

A report by Deutsche Bank on innovation late last month cited research from McKinsey & Co. showing oft-derided line extensions cost considerably less to market than substantially new products, yet have almost twice the success rate of those "big-bang" launches.

"True innovation is getting riskier, more expensive and more competitive," said the report by analyst William Schmitz. He argued that package-goods marketers need to take several steps to more reliably and quickly produce both big ideas and smaller tactical product launches, but concedes the focus today is more on risk aversion.

Brand managers often are only on any single job just 18 to 24 months, Mr. Schmitz noted. So they want to make their hit quickly and move on, preferably upward, to the next assignment.

Big new-product and brand launches take about 50% longer to get to market and 67% longer to pay back their investment, according to the report. Plus, their success rate is roughly half that of line extensions, largely because of the higher cost. So line extensions offer the upward career path of least resistance, Mr. Schmidt said.

Data from Information Resources Inc.'s 2004 Pacesetters study of new-product success indicates more marketers may be learning that lesson.

New package-goods product offerings surged 11.8% to 1,561 last year, according to IRI. But the proportion of line and brand extensions, defined respectively as new versions of the same brand in the same category and extensions of brands into adjacent categories, rose to 94%, up from an average of 87% since 1995. New brand launches declined to only 6% of new-product launches in 2004 from a 10-year average of 13%.

The trend toward line extensions appears particularly pronounced in non-food areas, where some retail buyers lately have decried a lack of category-creating new brands and products more common a few years ago, such as Procter & Gamble Co.'s Swiffer, Febreze and Crest Whitestrips.

flop prevention

An emphasis on extending brands vs. launching new ones has helped prevent big, expensive flops-such as P&G's disappointing Dryel home dry-cleaning kits and divested Fit produce rinse. But it also appears to be limiting success, at least industry-wide.

IRI reports that only 22% of new non-food products reached the $7.5 million year-one sales threshold in food, drug and mass-merchandise stores excluding Wal-Mart, down from the 10-year average of 27%.

Valerie Skala Walker, VP-analytic product management of IRI, sees several reasons behind the trend, including safety and return-on-investment. "Obviously it is less expensive and less risky to use an established, high-equity brand name when you're launching a new product," she said. "So [extensions] are more efficient. Secondly, due to corporate consolidation, most manufacturers have in their portfolios a brand that's extendable to almost any new innovation."

Even among brand and line extensions, however, substantially new products can mean bigger risks, and ones from which some marketers are shying. Colgate-Palmolive Co.'s Colgate Simply White, its cheaper paint-on answer to Crest Whitestrips, was a big hit initially in 2002 and 2003 but has since declined substantially. Colgate Chairman-CEO Reuben Mark has promised investors a return to focus on the core toothpaste and toothbrush business, taking considerable ribbing from analysts in December when he termed the company's current new-product efforts "quiet innovation."

But innovation appears to be speaking more softly among Colgate's peers and competitors, too. Average sales of IRI's top 10 2004 Pacesetters were $72.9 million, but sales of the projected top 10 for 2005 at this point, based on annualizing year-to-date sales, are only $51.5 million, down 29%.

P&G, which has averaged four or five entries on the top 10 list in recent years, has only two on the 2005 projected list-line extensions for Pantene and Downy-though a third, Glad Forceflex trash bags, is based on P&G technology, and P&G will be acquiring its way into the top two-Gillette M3 Power and Venus Divine razors.

One factor depressing sales for some of the top new products is that marketers are getting much faster at matching competitive entries, Ms. Walker noted. S.C. Johnson's new Scrubbing Bubbles toilet cleaner with flushable brushes is on pace to rank No. 10 for 2005 with $31 million in sales, but competitive entries from Clorox and Reckitt Benckiser bring the new segment to $74 million total. Two others-Kao Brands' Brilliant Brunette and Glad ForceFlex-also face competitive entries.

Sometimes quieter innovation goes over much better. Take two Febreze extensions launched last August. Air Effects, the brand's take on air fresheners long available from other brands, racked up $18 million in sales through March 20, according to IRI. Scentstories, a more novel concept that uses CDs and a CD player to tell stories using fragrance, has had only $2 million in sales.

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