Line Extensions are Easy. Innovation is Hard.

I found this piece written by Al Ries in AdWeek today talking about line extensions.  The article caught my eye because it uses examples from the beer industry as arguments against line extending brands.

Al makes some good points and has the data to support it:

• Bud Light ate away at Bud’s volume
• Bud, Bud Light and Bud Light Lime and Bud Select are all one brand, with different flavors – no matter what the marketers want to tell you
• Miller has gone thru the same issues and lost a boat load of money in the process
• (read the article for more of the stats and data to support his point)

But what’s not mentioned is the alternative to line extending: creating new brands.  And creating new brands is hard.  Starting at ground zero is hard.  Convincing distributors, bottlers, retailers and consumers to take a chance on your new brand is just about the hardest thing to do in business.  It takes time, it takes patience, it takes an entrepreneurial spirit and it takes a desire to constantly test, track, monitor and measure effectiveness.

Trust me – it’s hard.  I’m in the thick of it right now working on a project that is not only launching a new BRAND, but a new category.

Here are some stats to think about:

• 92% of new brands never reach $50MM in sales
• 78% of new items do not reach $7.5MM in year 1
• Of the 22% that do reach the $7.5MM plateau, 92% of them are line extensions – NOT NEW BRANDS!
• Stats via 2007 IRI Pacesetters Report

It’s easy to sit there and play “Armchair Quarterback” and say “Don’t ever line extend!”  But there are just as many reasons and statistics pointing marketers in the line extension direction too.

I’m still figuring all of this out, but at this point I think it comes down to this:

• Ask yourself if you need to innovate to stay relevant in your category
• If the answer is “yes” – ask yourself if you have the patience and drive to innovate new to world brands
• If the answer is “yes” again – ask yourself if you have the long-term support of your owner, shareholders and board of directors.  By support, I mean the desire to embark on a long, crazy journey that’s bound to have plenty of ups and downs – and probably a few casualties
• If the answer is ever “no” – start thinking about a line extension that might one day be your lead brand

*Hat tip to Jerry Knight for coining the phrase “Innovation is hard.”

Line Extensions

I’ve been in the beer industry for eight years now, and I’ve learned that just like any other industry, it’s extremely cyclical. In the beer industry, the cycles sway back and forth from “concentrate on core brands” to “innnovate and launch new brands/styles”. Right now, We’re definitely in an “innovate and launch” cycle and it’s been interesting to see which direction the brewers go when launching a new brand: line extend or create a new brand.

It’s been interesting to see which direction to go when launching a new brand: line extend or new brand?

Let’s look at some recent case studies:

• Line Extensions:
  • Michelob Ultra – this brand experienced huge success for a few year, but it was somewhat short lived as the popularity of the Atkins Diet waned. But it is still a brand with strong positioning and loyal, niche following. Plus it’s really the only low-carb brand that survived.
  • Budweiser Select – this brand is still around and probably will be for a while – but I doubt that it ever reached AB’s expectations and it appears that this brand has been relegated to a second tier brand for AB.
• New Brands
  • Miller Chill – This launch of Miller Chill was a huge success for Miller. Not only did they steal share from competitors, but they traded those consumers up to a higer priced brand.
  • Blue Moon – The success for Blue Moon has been developing for quite a while. I remember drinking a Blue Moon in Glenwood Springs in 2002 , long before I lived in Colorado and long before it gained its current popularity. Blue Moon is a brand that has been allowed to grow as consumers discovered the brand. Kudos to Coors for having patience and doing this the right way. In the day and age of immediate return on investment and impatient stockholders – this brand was built right.

Now here come the new brands. AB is line extending Bud Light to Bud Light Lime and Miller is extending Miller Light to the Miller Brewer’s Collection. It will be interesting to see how these brands fare, but I think it’s pretty easy to make a prediction is pretty easy: Line extensions lead to mediocre brands in the beverage business.

• Bud Light Lime will probably find the same fate of Coke Lime – a niche brand that appeals to a small audience and essentially waters down the flagship. Personally, I would have just ran on-premise promotions where consumers are encouraged to try their Bud Light with a Lime, but that’s me.
• Miller will test market the Miller Lite Brewer’s Collection, get some good feedback and take a couple of the styles national. But it won’t take long for Miller to lose interest because the brands aren’t growing as fast as they want and consequently, they will start to fade. I understand Miller wants to carve out a new niche in craft beers, but given the choice to line extend, I can already tell that they don’t have the patience needed to make these brands successful.

Ultimately, there isn’t a steadfast rule when it comes to answering the question of line extending or not. But, if a you’re looking for an immediate spike, line extending probably is the way to go. Just don’t bet your future on that brand, because it will probably