‘Money Makers’ – How to Capture Value? Niche Product Line Extensions
Retail shelves are crowded with competing products. Brands are struggling to break through and resonate with customers. What’s more, OEM and private label brands are proliferating in commercial B2B spaces. In light of these factors: Are you creating enough value for your brand?
Take a page from the leading global marketers. They have built strong brand halos by investing in global marketing programs with advertising for their flagship and master brands. At the same time, they are dissecting customer segments to discover niches where they can capture more value through product line extensions.
Well-crafted extensions can deliver a multitude of rewards. They leverage established and recognized brands. Plus, they add promises that speak to specific customer preferences, priorities and life style choices.
Are product line extensions always feasible? Marketers, of course, need to do the math. Potential sales and margins need to be cast against investments, such as outlays for technology, marketing, operations and inventory. Do the fruits outweigh the spending? This cost-benefit analysis also must consider the issue of the added complexity of the customer offer not only to the marketer but also to distributors and trade channels.
A Case Study in Lubricants
For retail lubricants markets, the synthetic category offers major potential for line extensions as the size of the synthetic pie continues to grow. Line extensions may help major brands defend share against becoming commodities. There’s more. Benefits come from enhanced loyalty of customers as well as opportunities for tiered pricing within the category.
Now for some numbers…. For the mature markets of North America and northern Europe, the average Marketers Gross Margin is about 48% for full synthetic passenger car engine oils; that compares with 38% for conventional engine oils. For China and India, the potential Gross Margin uplift is much greater. In those growth markets, the full synthetic margins average about 45% versus 30% for conventional engine oils.
Let’s take a quick look at how Shell has used product line extensions to grow value in the commercial market. Shell successfully has extended its flagship Rotella brand in North America. Rotella rapidly grew in the early to mid-1980’s with recognized exceptional performance in heavy duty trucks among the Owner Operator class of trade. It strengthened with the introduction of Rotella T Multigrade in gallon containers that truckers easily could carry in the cab of the truck. As awareness and acceptance of Rotella rose as a leading commercial HD diesel truck oil brand, Shell saw an opportunity for new product quality and pricing tiers. Later it could extend the brand to other customer sets and product lines. Shell was among the first in – it introduced a Rotella T Synthetic Blend and then a Full Synthetic Rotella T.
And so it went. In the early 2010’s, Shell built positions with fleet operators through more Rotella brand extensions. Shell introduced multiple performance levels and pricing tiers across the Rotella portfolio from Rotella T 1 monogrades through Rotella T 6 full synthetic. What’s more, each tier featured specialized products for fleet and natural gas applications as well as European specifications. Shell also extended the Rotella brand into adjacent products, e.g., antifreeze and coolants, diesel exhaust fluids and most recently, gasoline-powered light trucks and SUVs with Rotella Gas Truck Oil.
Today, more than 20 separate products bear the Rotella name. Shell did the same with its global flagship Rimula brand to forge a commanding position in the commercial lubricants and specialties business.
Many lubricants marketers are following suit. Some are more successful than others. Over the coming decade, product line extensions will be a critical strategy. One thing is for sure: they deliver value in the automotive market.