Familiarity
One of the great things about businesses building strong reputations with the general public is that they have the opportunity to capitalize on those relationships. For example, let us assume that you have been a consumer of Johnson & Johnson's baby products for each of your two kids. You are now in the store and shopping for some typical household products. When you look on the store shelves, you realize that Johnson & Johnson is also responsible for mouthwash and lotion products as well.
Although you have previously always depended on another brand for these products, you decide to select the Johnson & Johnson products this time around because you are familiar and satisfied with the quality of their other products. Many businesses succeed with establishing additional product lines because of the prior success and popularity of their previous products. A good rule of thumb is that customers have a better chance of buying products from an organization or brand that they are familiar with.
Brand Diversification Through Market Penetration
The most successful businesses in the world are masters at penetrating the market. The phrase 'penetrating the market' simply means that businesses are attempting to increase the market share of their products through different strategies. One of those strategies is by having diversified, or different, products lines. For example, Coca-Cola established a very successful business by providing a cola soft drink beverage to consumers. However, at some point, Coca-Cola decided that it wanted to expand its empire by diversifying and entering markets other than the one that it had conquered.
As time has passed, consumers began to become more health-conscious, and Coca-Cola made the decision to capitalize on this by creating Dasani, which is its own brand of bottled water. Coca-Cola also entered a different market with Powerade, which is a sports drink and the rival of the sports drink Gatorade. Although previously successful in its soft drink venture, Coca-Cola has expanded its business through market diversification and by entering different markets to increase its market share, while taking business from competitors in those other areas.
Creates Value
One of the most widely undersold traits of the importance of product lines is its ability to create or enhance the value of a brand. The addition of multiple product lines can create value by either of the following ways:
- Cost advantage
- Differentiation advantage
With a cost advantage, businesses are able to use their product lines to create value by delivering the same benefits as competitors but at a competitive cost. For example, let's say that you are in need of some white sneakers. You have noticed that Nike and Reebok have similar shoes, but Nike has them priced slightly lower. This is a cost advantage, which creates value.
The differentiation advantage allows a business to provide benefits and results that are greater than those of their rivals. Let's use our previous example of Nike and Reebok. Although Nike has your desired shoes priced slightly lower, you see characteristics in Reebok's shoes, perhaps something such as a more comfortable feel, that you value more than the lower cost of Nike. This is where the differentiation advantage takes place to create value.
Lesson Summary
A product line is a set of related products which are sold to consumers under a sole name or brand. Product lines are important for three primary reasons: familiarity, product and brand diversification through market penetration, and created value.
