Firms introduce new products to meet changing consumer needs, exploit market opportunities and sustain profitability. The main benefits and limitations / risks are summarised below.
Benefits
Limitations / Risks
Creates new revenue streams and can increase market share.
Allows the business to respond to technological change or competitor moves.
Strengthens the overall brand by demonstrating innovation.
Spreads fixed costs (economies of scope) across a larger product range.
High research‑and‑development (R&D) and launch costs.
Uncertainty about consumer acceptance – the product may fail.
Longer time‑to‑market can give rivals a first‑mover advantage.
Potential cannibalisation of existing products.
2. Product‑mix and the distinction between product development and product extension
Product‑mix (product assortment) – the complete set of products that a firm offers, defined by width (number of lines), length (total items), depth (variations within a line) and consistency (how closely related the lines are).
Product development – creating a completely new product that does not exist in the current product‑mix (e.g., a smartphone maker launching a smartwatch).
Product extension – adding to the existing product‑mix by using an existing brand or line (e.g., a new flavour of an existing drink).
3. Brand image and its impact on sales & loyalty
Brand image is the set of associations and perceptions that customers hold about a brand (e.g., quality, reliability, status). It is shaped by:
Logo, name and visual identity.
Advertising and promotional messages.
Customer experience and word‑of‑mouth.
Corporate social responsibility and sponsorships.
A strong, favourable brand image can:
Command a premium price.
Increase repeat purchases and customer loyalty.
Make new product extensions easier to accept.
Provide a competitive shield against rivals.
4. Role of packaging
Functional role
Promotional role
Protects the product from damage, contamination and theft.
Provides essential information (ingredients, usage instructions, legal warnings).
Facilitates handling, storage and transport.
Creates visual appeal on the shelf (colour, shape, graphics).
Communicates brand identity and product benefits.
Differentiates the product from competitors.
Can be used for “green” positioning (recyclable, biodegradable).
5. Product‑life‑cycle (PLC) and extension strategies
The PLC shows the typical sales pattern of a product:
Stage
Typical characteristics
Introduction
Low sales, high costs, heavy promotion, price often high to recover R&D.
Growth
Rapid sales increase, economies of scale, price may fall, competition appears.
Maturity
Sales peak, market saturated, profit margins stabilise, need for differentiation.
Decline
Sales fall, profit declines, market shrinks, product may be withdrawn.
Linking PLC stages to extension strategies (Cambridge syllabus requirement):
Introduction – often uses a brand extension to leverage an established name and speed market entry.
Growth – firms add line extensions (new flavours, sizes) to capture a larger share of a rising market.
Maturity – horizontal or vertical product‑mix extensions refresh the range and target new price/quality segments.
Decline – a conglomerate extension or diversification can provide a new growth avenue outside the fading market.
6. Implications of PLC stages for the marketing mix (4 Ps)
PLC Stage
Price
Promotion
Place (Distribution)
Introduction
Skimming or penetration pricing depending on market‑entry strategy.
Intensive advertising, personal selling, trial offers, heavy online buzz.
Selective distribution – focus on outlets that reinforce the brand image.
Growth
Price often reduced to gain market share; occasional promotional discounts.
Emphasis on differentiating features, wider media mix, influencer partnerships.
Expand distribution to reach more retailers and online platforms.
Maturity
Competitive pricing; possible volume‑based discounts.
Businesses can extend their product offering in five main ways. Each type is a different way of widening the product‑mix.
Line Extension
Brand Extension
Horizontal Extension (product‑mix)
Vertical Extension (product‑mix)
Conglomerate Extension (product‑mix)
7.1 Line Extension
Adding new items to an existing product line (e.g., new flavours of a soft drink).
Advantages
Disadvantages
Uses existing brand reputation and customer loyalty.
Lower development cost than a completely new product.
Provides more choice, helping to increase market share.
Quick response to changing consumer tastes.
Risk of cannibalising sales of current items.
Too many variants can confuse customers (over‑extension).
May dilute the brand if the new variants are of lower quality.
Increases inventory and production complexity.
Numeric example (break‑even):
A soft‑drink company adds a 250 ml “tropical” flavour. Fixed costs = £120 000, variable cost per unit = £0.30, selling price = £0.60.
Break‑even volume = £120 000 ÷ (£0.60‑£0.30) = 400 000 units. This simple calculation helps students practise AO3 quantitative skills.
Case‑study snippet (exam style) – *Coca‑Cola* introduced “Coca‑Cola Cherry” in 1985. The line extension lifted overall sales by 3 % in the first year, but also caused a 1 % dip in the original cola’s volume, illustrating cannibalisation.
7.2 Brand Extension
Using an established brand name to launch a product in a different category (e.g., a clothing brand launching a perfume).
Advantages
Disadvantages
Capitalises on existing brand equity – lower marketing costs.
Facilitates rapid entry into a new market.
Can raise overall brand visibility and prestige.
Consumers often trust the new product because of the known brand.
Failure can damage the parent brand’s reputation.
Consumers may view the brand as “out of its depth”.
Potential mismatch between brand image and the new product category.
Risk of over‑stretching the brand, leading to loss of focus.
Case‑study snippet – *Apple* moved from computers to portable music players (iPod) and later to smartphones (iPhone). The brand extension reinforced Apple’s “design‑led, premium” image and allowed a price‑skimming strategy with selective distribution through Apple Stores.
7.3 Horizontal Extension (product‑mix)
Adding new products at the same price and quality level as existing items (e.g., a laptop range adding a gaming model at a similar price point).
Advantages
Disadvantages
Broadens market coverage without altering price perception.
Targets new customer segments while keeping the core positioning.
Can increase sales volume and achieve economies of scale.
May lead to internal competition (cannibalisation).
Requires additional marketing and distribution resources.
7.4 Vertical Extension (product‑mix)
Introducing products at a higher or lower price/quality level than the existing range (e.g., a budget car maker launching a luxury model).
Risk of brand dilution if quality standards differ too much.
Higher‑priced extensions may alienate price‑sensitive customers.
Lower‑priced extensions may cheapen the brand’s image.
7.5 Conglomerate Extension (product‑mix)
Entering an entirely unrelated market with a new product (e.g., a cosmetics company launching a line of kitchen appliances).
Advantages
Disadvantages
Diversifies risk across different industries.
Potential for high growth if the new market is emerging.
Utilises excess resources or capabilities in new ways.
Limited brand relevance; heavy marketing investment may be needed.
Higher chance of failure due to lack of expertise.
Can distract management from the core business.
8. Legal, ethical and international considerations
Intellectual property – trademarks, patents and design rights must be protected when extending a brand; infringement can lead to costly lawsuits.
Consumer‑protection legislation – packaging claims, health warnings and advertising standards must be complied with (e.g., EU Food Information Regulation).
Ethical issues – misleading “green” packaging, false health claims or exploiting vulnerable groups can damage reputation.
International extension – when a brand extension is launched abroad, firms must consider:
Local cultural relevance (colour meanings, brand‑image fit).
Business organisation – the choice of legal structure (sole trader, partnership, limited company) influences the resources available for extensions and the level of personal liability. For high‑risk conglomerate extensions, a limited company is often recommended to protect owners’ personal assets.
9. Technology and modern extension strategies
Digital channels (e‑commerce platforms, social‑media advertising, influencer partnerships) are now integral to launching extensions. They enable:
Lower entry costs and faster market testing (e.g., limited‑run “pop‑up” products on Instagram).
Direct interaction with target segments, improving feedback loops and rapid iteration.
Enhanced brand storytelling that supports both line and brand extensions.
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