growing sales of a new product in a current market.
When a company changes its product in some way with the hope of increasing sales to current customers, that strategy is known as product development. There are three major ways that this can be done depending on whether a new brand name is used for the new product or not:
(Note that the second and third approaches also necessarily involve a feature, quality and/or technology change.)
A product development strategy could be applied to the current customer base by asking whether there are any segments of that market that could be better served with a new product or brand. On the other hand, the strategy might not involve any further segmentation at all.
One way to create a new product is to add or subtract a feature for an existing product. Duracell's battery tester was an added feature while Frito Lay subtracted trans fats to create healthier snacks. Notice that in both of these examples the brand name did not change (nor was any new segment created).
Coca Cola subtracted calories to create a brand extension called Diet Coke and added vanilla flavor to create Vanilla Coke. Duracell came up with the new technology of Duracell Ultra to meet the extra power requirements of high-drain devices such as MP3 players. These are examples of brand extensions (and new market segments).
Consider a product so apparently mundane as tires. Michelin at one point had almost a dozen "brands" of passenger tires alone (Harmony, Energy LX4, Symmetry, Agility, Destiny, X-Ice, etc.) and more for SUVs and trucks. Each tire was designed to be marketed as having a different technology and feature set.
While trading off the original brand's equity may be a good thing in some cases, in other cases a clear distinction between a new and old product may make more sense. That is what Fiskars did with their DuraSharp brand. They followed a product development strategy but wanted to make sure that each brand had a separate identity so that they could cover two price points in the same store. The small difference in quality, even if noticed, would not hurt the Fiskars brand's reputation under this plan.(Note that these product development alternatives can shade together as in a new tire feature that is a new technology and hence a different quality and probably price point.)
The dangers of product development
The main dangers facing a company following a product development strategy for a brand are that any new brand name may result in loss of meaning for the original brand and/or cannibalization of the original brand, particularly if it is a brand extension.
PepsiCo's Aquafina brand of water was originally positioned as having "Nothing." It could be contrasted with Coca-Cola's Dasani brand which had minerals added. But when Aquafina used a product development strategy to launch Aquafina Essentials—which had something added—that brand extension could have clouded the meaning of "Aquafina." When consumers get confused about the meaning of a brand, they usually omit it from their consideration set. Of course, this is not a good thing.
Gatorade's brand family includes so many brand extensions that it is difficult to keep them straight (Prime, Perform, Recover, Fit, Pro plus Fierce, Frost and others). Each of these is designed to quench thirst and replenish the body. The worse of a job that Gatorade does in establishing separate positionings for each of these products, the higher the chance of cannibalization.
Procter & Gamble minimizes the possibility of cannibalization among their detergent brands through the use of benefit segmentation with separate brand names for each benefit segment. Tide, Cheer, Dreft, Ivory Snow, Gain, Bold, Oxydol and Dash are all positioned—and named—separately since each has a particular benefit.
Another related product development strategy is where a company introduces successive generations of products over time, as when Gillette replaces current razors with new razors (from single-bladed, to dual- bladed to n-bladed razors), keeping the older generations of its razors and blades on sale. Thus, they are using the psychographic variable of "innovators" to market a new technology each time they introduce a new product. This minimizes cannibalization. Indeed, some buyers continue to use multiple generations of razors.
(Note: Gillette also increases prices on earlier generations of razors and blades, thus benefitting from their business model in three ways: (1) higher profit margins on any new product vs. older products—due to the typical price premiums that new products with no or little competition can command; (2) increased prices and profit margins on older products—as a "nudge" trying to get consumers to trade up to the [even higher margin] new product; and (3) their traditional "razor blade theory of marketing" business model, namely "giving away" the razor and making money on the blades.)
The deliberate use of product obsolescence aimed at different levels of adopters of new technology might be termed Cascading Product Development.
The special case of retailers
Retailers present a special—and big—case of product development. That is because the retailer is the brand. For example, McDonald's is a brand that sells a variety of food through retail outlets. Target is a brand that sells many product items in its retail stores. In both cases, product development would, strictly speaking, refer to a modification of the brand, in particular, the positioning of the brand. A new menu item at McDonald's or a new product carried in a Target store would not typically be thought of as product development. It would only be product development if any changes in what is sold within the stores constituted a substantial change in the brand (or its positioning) itself.
McDonald's attempted to change its brand identity on the evaluative dimension of healthy food. To do that they changed their menu enough that you could say that the product had changed. More clearly, Subway changed its positioning from a restaurant with food that was not so good for you to a restaurant with healthy food. These both could be considered to be product development. But when Wal-Mart added Blimpie food outlets to some of its stores (it already had its own fast food service or other fast food brands in stores), this move alone did not substantially change the positioning of the brand.