John Quelch and David Kenny’s article is an excellent discussion of why cost accounting and marketing go hand in hand. We’re afraid, however, that it may leave the impression that product-line extensions are all bad and should be sharply curtailed. While this may be true for many companies, it need not be true for all. Indeed, with the right cost-accounting and market-research systems in place, line extensions can be quite profitable.
Sales of the entire Doritos line of corn chips, for example, rose to more than $1 billion on the success of the Cool Ranch Doritos extension. In addition, diet and caffeine-free line extensions have expanded the soft-drink market to new segments; and the two- and three-liter bottles have stimulated consumption because, in many households, if they’re in the refrigerator, they get consumed. In the automobile industry, the Ford Explorer and the Chrysler minivan have forged profitable new market segments that are synergistic with the older ones.