What is the Law of Division in marketing? Why is expanding your brand to new categories dangerous for your company?
The Law of Division states that if a market leader wants to enter an emerging category, it needs a new brand name for that category. The Law of Extension expands on that message and says that the credibility you build in one market doesn’t necessarily transfer to other product categories. Therefore, it’s risky to try to expand an existing brand into a new category.
Keep reading for more on the Law of Division and the Law of Line Extension.
The Law of Division
Over time, as the number of companies in a market shrinks, the category tends to divide into more specific categories. For example, what was once a single “computer” category eventually divided into mainframes, minicomputers, personal computers, laptops, and notebooks. Even popular music evolved from one general category into the multiple categories, including jazz, R&B, dance, Latin, country, and pop. Each new category then develops its own hierarchy of brands. If a market leader wants to enter one of these emerging categories, it needs a new brand name for that category. Although it seems logical to extend the same, successful brand name to a new product, doing so confuses customers and hurts the company’s credibility. Customers have come to associate the existing brand name with a specific attribute, so the company needs a different brand name to link to an appropriate word for the new category.
For example, Volkswagen found success with its Beetle in the small car category, but the company flailed when it tried to extend its dominance to categories for bigger and faster cars with the Vanagon, the Cabriolet, and the Scirocco—all under the Volkswagen brand. As a result, Volkswagen lost a huge portion of its market share. By contrast, when Honda decided to enter the luxury car market, it created the Acura, which allowed Honda to maintain its existing dominance while Acura developed a distinct reputation in its own category. Ultimately, Honda and Acura became the market leaders in two different categories.
The Law of Line Extension
Similar to the Law of Division, the Law of Line extension is when a company with a successful product in one category tries to extend its success by launching additional products in other categories under the same brand name. For example, Heinz tried to leverage its position as the market leader in ketchup by introducing Heinz baby food. If you just thought, “Heinz baby food?!” then you demonstrated exactly why line extension doesn’t work. The credibility you build in one market doesn’t necessarily transfer to other product categories.
Focusing your marketing message is critical because it creates a connection in consumers’ minds between your product and a single characteristic. Alternatively, if you try to be everything to everyone, you’ll end up being nothing to anyone. The same goes for your products: You’ll be more successful creating a strong association between your brand and a single product, and you’ll dilute the power of that association if you tether more products to the brand name. Put another way, the public can only hold one association in their heads—and if you try to claim more associations, they lose any connection to your brand entirely.
Market leaders seldom have line extensions:
- It’s more feasible to maintain market dominance if your company isn’t spread thinly over multiple product lines. Market leaders know that it’s better to do well in one market than to perform poorly in many markets.
- The market leader’s brand name often becomes synonymous with the product itself, which would obviously create problems if you tried to stick that brand name on other products. Imagine if someone asked you for the Kleenex, but they meant a Kleenex-brand soap instead of a tissue. It just doesn’t work.
The Dangers of Line Extension
Despite the perils of line extension, companies violate this law more than almost any other because line extension happens almost effortlessly:
- Companies are lured by short-term sales boosts that line extensions often create and companies typically end up losing money in the long term.
- Line extension requires less money than launching a product under a new brand name.
- Line extensions feel like a safer way to enter the market if a company isn’t early enough to either be the leader.