Say yes to the stretch? Unlock CPG growth potential through category expansion - NIQ

Say yes to the stretch? Unlock CPG growth potential through category expansion


Say yes to the stretch? Unlock CPG growth potential through category expansion

  • Brand stretch — when an existing brand extends into a new category — is a prevalent innovation type leveraged by manufacturers for growth. 
  • Being a well-recognized brand does not always result in a successful category stretch. 
  • Innovators should approach new categories with a consumer-first mindset, ensuring they have permission to stretch.  

Don’t be driven by FOMO

Has a fear of missing out (FOMO) ever driven your decision-making? Maybe you’ve made reservations at a trendy restaurant despite its long wait list and mediocre food. Or perhaps your friends’ #BeachLife photos drove you to book an island getaway, even though you dislike hot weather and sunburn easily. Instead of taking a rational approach to decision-making, we let FOMO get the best of us because we don’t want opportunities to pass us by. This same phenomenon can also apply to brands. 

Brands are continuously looking for opportunities to unlock new growth potential. They keep a pulse on the latest trends to stay competitive and relevant and may feel they’ve missed out if their brand isn’t represented in a new, popular category. This is why brand stretch (i.e., an existing brand extending into a new category) is a prevalent innovation type leveraged by manufacturers. Per our Innovation Measurement database, of all new brands entering categories in the U.S. in the past year, 25% of them are brand extensions.

But should you always say yes to the stretch?

Consider these scenarios: 

  • A popular snack brand recognizes that frozen food is a hot category for growth and innovation. Frozen food sales exceeded $70 billion in 2022 — a 7.6% increase over 2021 and a 31% increase over 2019 pre-pandemic sales. New products, from mochi ice cream to croissant crust frozen pizza, hit the shelves every day. Even brands outside the frozen food category are unwittingly becoming popular frozen food treats. But does that mean the snack brand should jump on the frozen food bandwagon? 
  • A juice company sees an opportunity in the alcoholic beverage category. This year alone, 56 new pre-mixed alcoholic beverage SKUs launched from non-alcoholic brands — even water is getting in on the action. Does it make sense for the juice company to expand into this fast-growing category? 
  • A well-recognized megabrand known for its baking soda products wants to enter a variety of CPG and non-CPG categories, ranging from deodorant to dirty diaper bags. While it performs well in categories like laundry, endeavors in the personal care category haven’t been as strong, with some products falling out of rotation as the brand hones its portfolio. Which category extensions should they prioritize to capture incremental growth going forward? 

Benefits of brand stretch

It’s no wonder brands are eager to dive headfirst into a new category. Our data shows that manufacturers who innovate are 1.8 times more likely to grow overall sales, and brand extensions earn about 23% more in sales than completely new brands in their first year in the market.

This finding isn’t surprising — as consumers become more discerning with their dollars, trust has historically proven to be a significant driver of product purchasing decisions. Brand stretch capitalizes on existing brands’ trust, which benefits consumers by making their shopping experience easier. That’s because how we shop is largely habitual; we gravitate to products or brands we’re familiar with. If done right, branding can communicate the experience of a new product and its reason for being in a new category. 

From a strategic standpoint, a brand extension can unlock a new revenue stream for your business, diversify your portfolio, and make your brand more resilient to potential competitive threats in a fast-changing environment, among other things. If your brand has reached the point of diminishing returns in its current category, extending to a new one could help revitalize it. And, done the right way, stretching your brand into a new space can help side-step some of the pitfalls of in-line extensions — such as revenue cannibalization — by offering truly incremental growth opportunities through new usage occasions and customers. Finally, from a tactical standpoint, brand stretch creates efficiencies in media, copy development, and trade and consumer promotions. 

Commit to the right fit

A well-known brand plus a new, growing category: Sounds like a winning formula. Not so fast — it may seem obvious, but first, you must ask yourself whether this category is the right fit for your brand. 

Brand extensions aren’t always a slam dunk. A cereal brand tries to extend into protein shakes; a cleaning product brand attempts to stretch into auto air fresheners; a sports drink launches a line of meal replacement bars. While in hindsight, it seems obvious why some of these extensions didn’t work, the truth is that when manufacturers perceive a competitive threat, they might think they need to get something, anything on the shelf, out of fear of getting left behind. Unsurprisingly, without proper vetting, these attempts siphon precious time and money — only to end up in the product graveyard. Even worse, failed extensions that don’t meet consumer expectations can dilute your brand, ultimately making you more vulnerable to competition. 

How do you know if a new category makes sense for your brand? Instead of focusing only on trends, consider which extensions might complement your brand. It might be capturing low-hanging fruit that plays to your strengths, like a peppermint candy brand that launches a peppermint-flavored popcorn product during the holiday season. Or maybe consumers are already engaging with your brand through compensatory behavior to address an unmet need. For instance, the juice company assessing whether to extend into the alcoholic beverage category discovers that consumers were already mixing their juice with alcohol. Providing a convenient packaged solution (i.e., a pre-mixed alcoholic drink) would align with this existing usage occasion while elevating the consumption experience. 

Have a consumer-first mindset

Neuro- and behavioral science research has shown that what we know about anything consists of a network of associations in our brains made up of all we’ve experienced — especially with consistent repetition. Brands are no different. What we know about a brand consists of all the perceptual (what our senses experience) and conceptual (what they mean) cues we’ve experienced repeatedly over time. These can be at the megabrand level or the sub-brand level and can be broad (Dove = moisture) or very category-focused (Coke = soda). Brands grow by strengthening their network of associations through repeated experience, which makes venturing into brand-new territory risky. If the distance between 2 ideas (or, in this case, categories) is far, it can be very difficult for consumers to associate them. 

In other words, to be successful in brand extendibility, you can’t just rely on being a recognizable brand. A realistic assessment of how consumers perceive your brand — and understanding whether they grant you permission to stretch — is a crucial first step that will help determine whether the new category is a natural fit. 

Long-lasting innovations are the ones that resolve unmet consumer needs. A consumer-first mindset allows you to have a deeper understanding of what consumers really want and how well your brand, compared with your competitors, satisfies those needs in the categories in which you already compete. Assessing your strengths and opportunities upfront can position you for better brand stretch decision-making and sets you up to achieve innovation vitality

Unlock growth potential

What does a consumer-first analysis of your brand extendibility look like in action? To illustrate, we ran a category stretch study for a popular snack brand. Why snacks? Not only is it a growing super-category, but our research also shows it as 1 of the top 5 categories for brand extensions. In this case study, you’ll see how consumers rank the brand’s extendibility among categories, their likelihood to purchase from the brand in these categories, and the brand’s alignment with expected and new usage occasions. Learn how to leverage these insights — and others — to unlock future growth potential. 

Ready to say yes to the stretch?

Download the BASES Brand Stretch Case Study today.

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