Where should you invest your new product budget?

If you’re thinking of launching a new product, be warned. The odds aren’t exactly in your favour. It’s expensive for one thing. And despite thousands of new products being launched every single year, there’s surprisingly little guidance to help brands work out whether their product has a good chance of success.

That may be about to change thanks to new research from the Ehrenberg-Bass Institute that finally presents marketers with a straightforward answer: focus on how many people try your product, not on how loyal those early buyers are.

The challenge every brand faces

Around 80% of line extensions fail within three years of launch; a truly sobering statistic when you consider how much money and effort goes into developing and launching these products.

Line extensions are those new variants that brands add to their existing range. Think new flavours, sizes or formats launched under an established brand name. They make up the vast majority of new product launches, partly because marketers see them as a safer bet than launching completely new brands.

But safety doesn’t necessarily lead to success. And once you’ve invested heavily in developing a line extension, you need to know quickly whether to keep supporting it or cut your losses.

What the research found

Researchers from the Ehrenberg-Bass Institute examined 12,489 line extensions across five consumer packaged goods (CPG) categories (cookies, coffee, cereal, toothpaste and spray air fresheners) over a 12-year period in the United States. They compared the launch year performance of line extensions that survived at least three years with those that failed after their first year.

The findings challenge what many marketers might assume. The study looked at two critical metrics:

• Repeat-buyer rate: How many people who bought the product once came back to buy it again
• Penetration: How many category buyers tried the product

Here’s the surprise: successful and failed line extensions had remarkably similar repeat-buyer rates throughout their launch year. For survivors, average (mean) repeat rates ranged from 18% in the first quarter to 30% by year end. For failures, they ranged from 20% to 25%. The patterns were nearly identical between the two groups. The real difference? Penetration.

Successful line extensions achieved roughly double the penetration of failed ones right from the first quarter after launch. The average survivor reached 0.8% of category buyers in the first quarter, whilst failed line extensions only reached 0.4%. Even more telling, survivor line extensions maintained or grew their penetration throughout the year, whilst failures saw a steady decline.

Why this matters

This research provides a simple diagnostic tool for marketers. By the end of the launch year, nearly 90% of failed line extensions had a penetration below the category average, compared to just 52% of survivors.

The modelling results reinforced this finding. Penetration was the strongest predictor of survival, with an odds ratio of 4.69. In practical terms, for each additional percentage point increase in penetration, the odds of survival increase by nearly five (holding other factors constant). Repeat-buyer rate, whilst statistically significant, had a much smaller impact with an odds ratio of just 1.01.

What marketers should do differently

This research has practical implications for how you manage new product launches:

1. Prioritise reach over retention in year one

Whilst product quality and customer experience matter, don’t obsess over building loyalty among your early buyers during the launch year. The data shows that repeat purchase rates don’t vary much between successful and failed products. Instead, invest in activities that drive trial amongst as many category buyers as possible.

2. Think distribution and awareness first

The findings support what evidence-based marketing has been telling us for years: wide distribution and high-reach advertising are critical. Your line extension needs to be visible and available to as many potential buyers as possible. Past research shows that seeing a new product in-store or advertised on TV are among the most common sources of new product awareness.

3. Check penetration early and often

The good news is you don’t have to wait long to get a read on likely success. Penetration differences between survivors and failures manifest as early as the first quarter after launch. Track this metric quarterly and be prepared to act quickly. If penetration is tracking below category average, you need to either ramp up your investment or consider remedial action.

4. Don’t abandon successful launches too soon

If your line extension is showing positive penetration trends, don’t make the mistake of cutting support too early. New product trial continues well beyond the first year, so successful launches need ongoing investment.

The bottom line

Some marketers might instinctively focus on building loyalty among early adopters, assuming that they will drive success. But this research shows that approach doesn’t work for line extensions. The path to survival runs through trial, not loyalty.

You can’t build a successful new CPG product on the backs of a small group of devoted buyers. You need to reach as many category buyers as possible, as quickly as possible. That means thinking carefully about which parent brand to use (larger brands have an advantage), securing wide distribution and investing in high-reach marketing activities.

The research gives marketers a clear and early signal of likely success or failure. Use it wisely, and you’ll make better decisions about where to invest your new product budget.

Full research paper available here: https://www.emerald.com/jpbm/article/doi/10.1108/JPBM-10-2024-5527/1299290/How-to-identify-line-extensions-that-survive