Background

As extensions can leverage the parent brand’s distribution networks, brand identity and relevant messages built up in consumer memory overtime, it is no wonder why marketers want to introduce them. Line extensions are the most common new launches marketing practitioners undertake for their brands. A line extension is when an established brand in a category introduces a new flavour, pack size or format to their portfolio.

Although line extensions are very common, what do we know about increasing the odds of achieving success? We are releasing a series of reports about line extension success that look at the likelihood and predictors of such new products. This includes their chance of survival, performance at launch and which performance metrics are better discriminators of success (trial vs repeat), when. We will also examine the role of discounting and distribution in survival.

In this first report, we focus on the former and extend the findings from Report 90 (Victory et al. 2018) about new product survival, to see how many survive over three years after launch, and whether some brands innovate better (produce more survivors).

What are the odds of survival?

There are different ways to measure success, such as achieving a certain sales or market share benchmark. We could also use the profitability. Of all success measures, survival is easier to detect, with the most obvious sign when a new product is delisted and is no longer available to buy. This measure can also be applied to all types of new launches.

We used survival as our initial measure of success and failure in this research. Success is a new product continuing to sell beyond launch, and failure is when its sales fall to zero. Delisting decisions are not always made solely by the retailer, we know manufacturers can also decide to stop selling new products. In this study we benchmark line extension survival but we do not know ‘who’ was behind the decision to delist the line extension.

To see if the odds of failure are really as high as the widely believed 80% rate in industry, we looked at how many new products stopped being bought and when this happened. In this research we extended our past investigations that used a two-year window, to three years after launch.

Drawing on a sample of almost 37,000 line extensions, introduced by big and small brands in the United States, after removing seasonal and other “limited time offer” offerings (i.e., launches with a shelf life of less than three months), the overall failure rate after one year is 25%, which nearly doubles to 46% after two years.

Looking further afield, the failure rate reaches 71% after three years. In other words, only three in 10 new variants that are launched today will still be bought in three years’ time. This is summarised in Chart 1. Note: the failure rate with seasonal line extension included are also shown (dotted line).

Chart 1. New Product Failure Rate (Excluding Seasonal/Limited Time Offers)

Source: Victory et al. (2024), ‘Are there generalizable patterns in line extension performance?’, Journal of Product & Brand Management.

As the time in market increases, fewer line extensions survive. This suggests there is continual culling from a cohort of new variants, possibly to make way for the next cohort of new products. This is to some degree expected given shelf space is typically finite, and that successful new products will attract competitors.

Institute research also finds that a large number of new products that win awards and are consumer-approved still do not go the distance (Victory & Tanusondjaja 2023). This is a good reminder about not neglecting the variants that have made it through the initial launch push, these initial ‘survivors’ still need support to last.

Do bigger or smaller share brands do it better?

Bigger brands have more physical and mental availability. Big brands are almost always sold in more places (see Wilbur & Farris 2014), and are known (and noticed) by more category buyers for more situations (see Romaniuk 2013).

When it comes to new launches, past buyers of the parent brand are more likely to purchase new launches (see Tanusondjaja, Trinh & Romaniuk 2016). This could be particularly useful for line extension survival as those from bigger brands would have bigger buyer base to draw upon at launch.

Given the advantages big brands can enjoy in their categories, how much do these benefits help bigger brands when launching new variants? To examine this, we compared the failure rate of line extensions launched by big and small brands. Big (small) brands are those with a market share in the top (bottom) third in their category.

Bigger brands have a small initial advantage that grows over time. This is shown in Chart 2. After 12 months, big brands have a 14% lower line extension failure rate (24% versus 28%). This advantage widens to a 20% lower failure after three years (68% versus 84%).

Chart 2. New Product Failure Rate for Launches by Big and Small Brands

Source: Victory (2021), ‘Understanding and predicting new line extension success’. PhD, Ehrenberg-Bass Institute, University of South Australia.

The difference in failure rates becomes greater over time which might be due to smaller brands encountering competition from similar new variants from larger brands (including retailer brands) after they prove the market potential of a particular new flavour, pack style etc. In other words, line extensions introduced by big and small brands have a similar chance of lasting a year, but further afield big brands have a reasonable advantage.

The question arises, could this bigger brand advantage be cofounded with other, related factors? We ran an addition analysis comparing category, brand and marketing factors (like distribution, pricing and discounting) using binary logistic regression. This analysis found introducing line extensions with a higher share parent brand (β= .39, p<.01) has a strong positive effect on survival length. The other marketing factors investigated in this analysis, like distribution, pricing and price discounting, are discussed in the next report.

Not only do big brands have larger portfolios and have a greater number of new products (see Report 80 and Report 90), their new launches last longer. However, simply relying on a big brand to guarantee success is misguided (as some still fail). Overall, our results show line extensions introduced by bigger brands have a greater chance of survival longer-term The success of big brands is likely due to the greater ease and access big brands have to secure and build distribution. The role of distribution is discussed in the next report in this series.

Do retailers or manufacturers do it better?

Next, we investigate whether retailers really at an advantage when it comes to new product launches. Retailers and manufacturers have different strengths that can aid new launches, but few studies have compared the likelihood of survival for these brand types.

Our analysis of 6,312 new private label line extensions shows their new products have a better chance of survival compared to the 24,504 line extensions from national brands.[1] After 12 months, variants introduced by retail brands have a failure rate of 22% compared to 32% for national brands. After two years, the failure rate increases to 34% for private label brands versus 46% for national brands.

This is a substantial difference in the odds of success but does it mean that retailers are really better at marketing new products? It is commonly thought retailers might have an ‘unfair’ advantage in that they can offer more prominent positions for their products, if not at first, they can certainly employ this tactic later if they fear failure. This may well be true but there are other reasons that must at least partially explain this lower failure rate.

Firstly, our measure of failure is dependent on being able to continue to secure shelf space. With this in mind, the fact that retailers own shelf space is a vital factor. This reduces risk (increases certainty) for retailers when planning new products is they know what level of distribution they will give the new product. While a manufacturer brand may eventually gain even greater physical availability, by being stocked by many retailers, just how many stores it will be stocked in is far less well known at launch, this adds to the risk. This is especially true for small brands.

Next, the overall failure rate must, by logic, depend heavily on the overall level of risk. So do retailers take less risk? Well, they certainly launch fewer new products, which suggests their risk profile is lower. Retailers can learn learn about what new products are selling in their stores, and only launch new variants in growth areas or that are proven to have some consumer demand. Retailers also receive daily updates about what is selling in stores, this means that retailers can act much faster and take advantage of trends.

In addition, the new product may deliver benefits to the retailer other than the sales and profits that a manufacturer brand manager hopes for. Retailer products may improve the retailer’s power over manufacturer brands, helping keep their margins down. The retailer might also believe that their own product range helps attract shoppers (who when in store buy other things too). Together, this may mean that a retailer may keep their own product on the shelves longer, even though it is performing at a sales level that would be unacceptable for a manufacturer brand (unacceptable to the manufacturer or retailer).

Summary and Suggested Actions

Line extensions are exciting and may be necessary, though risky, bets for a brand. This makes it incredibly important to know your odds, what might help beat them, and how to know when you are on the right pathway in doing so.

In this first report, we show most line extensions do survive their first year, but many do not go the distance. While some brands have a better chance of securing longevity (i.e., big brands and private labels), at least in the short-term/a year after launch, no one type of brand is immune to being delisted.

Based on the results in this first report, if you’re launching something new for the long-term…

• Ensure there’s an evidence-based case for the introduction. Many line extensions are in/out and do not survive long-term. Be clear on objectives and success criteria.
• Be patient and continue to invest after launch. Although most line extensions will last their first year, failure is still likely. Ensure support continues after this first hurdle.

Line extension success is not just about picking the ‘best’ ideas, and even products backed by the biggest brands or the retailers themselves still fail. In our next two reports, we show the metrics to track and the activities that keep line extensions on their success trajectory. Keep an eye out for this new research as we learn more about the role of leveraging, activating and overlapping all parts of mental and physical availability for new launches.

Part two of this report will be share toward the end of 2024.

[1] Data Source: IRI data for 30+ categories in the United States.