Marketing Quiz: Brand Extensions
20 questions · exam conditions
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Brand ExtensionsQuestion 1 of 20

A snack company sells 5.0 million bags of its original potato chips annually. It introduces a 'Spicy BBQ' line extension. In the following year, sales of the original flavor drop to 4.2 million bags, while the new Spicy BBQ flavor sells 1.5 million bags. What percentage of the Spicy BBQ flavor's sales was incremental (i.e., represented new growth for the brand rather than cannibalized sales)?

18.7%
46.7%
53.3%
86.0%
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Marketing Quiz

Marketing Quiz: Brand Extensions

Practice Brand Extensions in Marketing with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Brand Extensions, giving you a quick way to practice the rules, question types, and explanations that matter most for Marketing.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

A snack company sells 5.0 million bags of its original potato chips annually. It introduces a 'Spicy BBQ' line extension. In the following year, sales of the original flavor drop to 4.2 million bags, while the new Spicy BBQ flavor sells 1.5 million bags. What percentage of the Spicy BBQ flavor's sales was incremental (i.e., represented new growth for the brand rather than cannibalized sales)?

  1. 18.7%
  2. 46.7% (correct answer)
  3. 53.3%
  4. 86.0%
Explanation: This requires multi-step analysis: 1. Calculate the sales lost from the original product: 5.0M - 4.2M = 800,000 bags. This is the amount of cannibalization. 2. Calculate the incremental sales. The new product sold 1.5M bags, but 800,000 of those were cannibalized. So, Incremental Sales = 1,500,000 - 800,000 = 700,000 bags. 3. Calculate the percentage of the new product's sales that were incremental: (Incremental Sales / New Product's Sales) * 100 = (700,000 / 1,500,000) * 100 = 46.67%. Distractor C (53.3%) represents the cannibalization rate (800,000 / 1,500,000), a common error.

Question 2

The marketing director for 'The Family Table,' a successful chain of mid-priced, family-friendly restaurants, is weighing two growth strategies. Option 1: Launch 'The Family Table at Home,' a line of frozen entrees sold in grocery stores. Option 2: Open 'Table Prime,' a new chain of upscale, fine-dining restaurants.

Which statement most accurately contrasts the primary branding risks associated with these two options?

  1. Option 1, a brand extension, risks diluting the core brand's 'freshly made' image; Option 2 is best launched as a new brand to avoid brand confusion. (correct answer)
  2. Option 1 is a line extension with low risk, while Option 2 is a brand extension that risks cannibalizing restaurant traffic.
  3. Both are brand extensions, but Option 1 risks retailer conflict while Option 2 primarily risks alienating the existing customer base.
  4. Option 1 is a safe diversification strategy, while Option 2 is a risky line extension that would not fit the company's capabilities.
Explanation: When evaluating growth strategies, you need to distinguish between different types of brand strategies and their associated risks. A line extension uses the existing brand name for products in the same category (like new menu items), while a brand extension stretches the brand into a different product category or market segment. Option A correctly identifies the key branding dynamics at play. "The Family Table at Home" frozen meals represent a brand extension into retail grocery products, which creates a fundamental contradiction with the restaurant's "freshly made" positioning. When customers see frozen versions of restaurant food, it can undermine their perception that the restaurant serves fresh, quality meals. Meanwhile, "Table Prime" should indeed be launched as a separate brand because the upscale positioning is so different from the family-friendly original that using the same name would create confusion about what "The Family Table" actually represents. Option B incorrectly classifies the frozen meals as a low-risk line extension, when it's actually a high-risk brand extension into a conflicting product category. Option C misidentifies both strategies as brand extensions and focuses on secondary risks (retailer conflict, customer alienation) rather than the primary branding concerns. Option D completely reverses the risk levels, calling the problematic frozen food strategy "safe" while mislabeling the upscale restaurant concept as a "line extension." Study tip: Always ask yourself whether a growth strategy maintains or contradicts the brand's core positioning. Extensions that create logical contradictions (like "fresh" restaurants selling frozen food) are typically the riskiest from a branding perspective.

Question 3

A leading brand of bottled spring water, 'Crystal Falls,' has built its reputation on the concepts of 'purity,' 'nature,' and 'health.' The company decides to leverage its brand recognition by launching 'Crystal Falls Fizz,' a new line of brightly-colored, sugar-laden carbonated soft drinks.

The most significant and probable branding risk that has been created for the 'Crystal Falls' parent brand is:

  1. Product cannibalization, as soda drinkers will switch from buying bottled water.
  2. Category incompetence, suggesting the company does not know how to technically produce soda.
  3. Line proliferation, because adding soda makes the water product line too confusing for consumers.
  4. Brand dilution, because the new product's attributes contradict the parent brand's core identity. (correct answer)
Explanation: The core risk is brand dilution. The parent brand stands for purity and health. The new product, a sugary soda, stands for the opposite. This contradiction can confuse consumers and weaken the original, highly valuable associations of the 'Crystal Falls' name. Cannibalization (A) is unlikely as the products serve different needs. Category incompetence (B) refers to the technical ability to make a product, whereas the issue here is brand image. Line proliferation (C) refers to too many variations within the same category (e.g., 20 flavors of water), which is not the case here as this is a brand extension to a new category.

Question 4

A company's flagship smartphone, the 'Helio Pro,' sells for $1,000. To compete at a lower price point, the company launches the 'Helio Lite' for $600 under the same brand family. After one year, total unit sales for the 'Helio' brand are flat compared to the previous year. However, internal data shows that 70% of 'Helio Lite' purchases were made by customers who had previously purchased 'Helio Pro' models, and the brand's overall profit margin has decreased significantly.

This outcome is a classic example of which branding decision risk?

  1. Brand dilution, as the lower-priced model has reduced the brand's perceived prestige.
  2. Market saturation, where the overall demand for smartphones has reached its peak.
  3. Line extension cannibalization, where the new product's sales come at the expense of the existing, higher-margin product. (correct answer)
  4. Negative feedback effects, where the failure of the 'Lite' model has harmed the 'Pro' model's reputation.
Explanation: The scenario describes cannibalization perfectly. The new product, a line extension (a new item in the same product category), did not generate significant new sales for the brand overall (total sales are flat). Instead, it prompted existing customers to switch from the high-margin 'Pro' model to the low-margin 'Lite' model, directly eating into the profits of the existing product line. While some brand dilution (A) might occur over time, the immediate, data-supported issue is cannibalization. Market saturation (B) is a market-level condition, not a direct result of this specific launch. The 'Lite' model was not a failure in terms of sales, so (D) is incorrect.

Question 5

A manufacturer of high-end, exclusive sports cars wants to enter the more accessible, mid-priced family SUV market. The marketing team is concerned that launching a 'cheaper' vehicle under the prestigious parent brand name could severely damage its reputation for exclusivity and performance. Which of the following branding strategies would most effectively mitigate this specific risk?

  1. Launch the SUV as a brand extension but market it heavily to a completely different demographic than the sports cars.
  2. Create a sub-brand that is clearly linked to the parent brand (e.g., 'Velocity SUVs by Prestiga Motors').
  3. Develop and launch the SUV under a completely new and separate brand name, with no explicit link to the sports car brand. (correct answer)
  4. Co-brand the new SUV with a well-respected, family-oriented brand to lend credibility in the new market segment.
Explanation: The greatest risk here is brand dilution of the exclusive parent brand. The most effective way to protect the parent brand is to create a 'firewall' by launching the new, down-market product under a completely separate brand name. This is known as a multi-brand strategy (e.g., Toyota creating Lexus, Honda creating Acura). While sub-branding (B) and co-branding (D) can help, they still maintain a link that risks diluting the parent brand. Marketing to a different demographic (A) does not solve the core problem of the brand name itself being on a product with conflicting associations.

Question 6

Despite the significant risks of dilution and failure, companies frequently pursue brand extensions. What is the primary strategic advantage a company gains by using a brand extension strategy versus launching a completely new brand?

  1. It allows the company to test a new product in a low-risk environment before committing a new brand name to it.
  2. It leverages the existing brand's equity and consumer awareness to reduce new product introduction costs and accelerate customer adoption. (correct answer)
  3. It guarantees access to the parent brand's existing distribution channels, regardless of the new product category.
  4. It creates a portfolio effect that isolates the parent brand from any financial losses incurred by the new product.
Explanation: The core motivation for a brand extension is to leverage the awareness, reputation, and loyalty of the established parent brand. This 'brand equity' can significantly lower the marketing costs (advertising, promotion) required to launch a new product and can encourage consumers and retailers to try the new offering more quickly. Option A is incorrect; using an established brand is a high-risk, not low-risk, strategy. Option C is not guaranteed; a brand of car tires may not get access to the same channels as the parent brand of ice cream. Option D is the opposite of the truth; a failed brand extension can directly harm the parent brand's finances and image.

Question 7

A premium coffee company, 'Artisan Roast,' is celebrated for its high-end, single-origin whole bean coffee sold through exclusive cafés. The company launches a new product: 'Artisan Roast Quick Brew,' an instant coffee mix sold in supermarkets. This move is intended to capture a wider market. Which of the following represents the most significant and immediate risk to the core 'Artisan Roast' brand?

  1. Cannibalization of whole bean coffee sales as existing customers switch to the more convenient instant option.
  2. Brand dilution, where the association with a mass-market, convenience product weakens the brand's premium, exclusive image. (correct answer)
  3. Insufficient production capacity to meet the high-volume demands of the supermarket channel, leading to stockouts.
  4. Retailer resistance from supermarkets who are hesitant to give shelf space to a new, unproven instant coffee brand.
Explanation: The primary risk is brand dilution. The core brand equity of 'Artisan Roast' is built on exclusivity, high quality, and craft. Introducing a mass-market product like instant coffee under the same brand name directly contradicts this positioning, potentially weakening the perceived value and prestige of the parent brand. While some cannibalization (A) might occur, it is secondary to the long-term strategic risk of damaging the brand's core identity. Production capacity (C) is an operational risk, not a branding risk. Retailer resistance (D) is a potential go-to-market challenge, but the core brand-level risk is the dilution of its hard-won premium image.

Question 8

A manufacturer of ultra-premium sports watches, 'Chronos,' with an average price of $10,000, decides to launch a new line of plastic, digital watches priced at $50. To leverage its reputation, the company decides to brand the new line as 'Chronos Active.'

This strategy is best described as a down-market brand extension, and its primary risk is that it will...

  1. fail to attract the low-end market segment due to the brand's high-end associations and perceived high price.
  2. damage the exclusive, high-quality image of the parent brand, making its premium watches seem less valuable. (correct answer)
  3. create a new revenue stream that cannibalizes sales from the company's more profitable premium watches.
  4. be viewed as a line extension rather than a brand extension, causing confusion among existing customers.
Explanation: A down-market extension is when a premium brand introduces a lower-priced product to enter a mass market. The single greatest risk of this strategy is brand dilution. By associating the 'Chronos' name with a cheap, mass-market product, the company risks eroding the brand's core equity built on exclusivity, craftsmanship, and luxury. This can make consumers less willing to pay a premium for its core products. While it might fail to attract the target market (A) or cause some cannibalization (C), the most significant strategic danger is the long-term damage to the parent brand's image.

Question 9

The Wall Street Journal, a highly respected financial newspaper, is considering a brand extension. The brand's core associations are 'trustworthiness,' 'in-depth analysis,' and 'business intelligence.' Which of the following potential extensions demonstrates the best 'fit' by leveraging these core brand associations?

  1. A line of branded high-end executive leather briefcases and pens.
  2. A chain of quick-service coffee shops located in urban financial districts.
  3. A subscription software platform offering sophisticated investment analysis and portfolio management tools. (correct answer)
  4. A fictional television drama series about power and intrigue on Wall Street.
Explanation: The best fit occurs when the parent brand's core skills and associations are transferable and relevant to the new category. The newspaper's brand is built on providing trustworthy financial analysis. An investment software platform directly leverages this competency. The other options are less aligned. Briefcases (A) leverage the audience but not the skill. Coffee shops (B) leverage location but not the core competency. A TV drama (D) leverages the topic but not the associations of 'trustworthiness' and 'analysis'; in fact, it could conflict with them.

Question 10

A leading athletic footwear company, 'Momentum,' launches a line of branded energy drinks. Initial sales are poor. Focus groups reveal that consumers, while loving the brand's shoes, do not trust a footwear company to produce a safe and effective beverage. Subsequently, quarterly tracking studies show a small but measurable decline in consumers' perception of 'Momentum' as a 'technologically advanced' shoe brand.

This sequence of events illustrates a failed brand extension primarily caused by what two interrelated factors?

  1. High production costs for the beverage, which led to insufficient marketing investment.
  2. Cannibalization of footwear sales, followed by a decline in brand loyalty among core customers.
  3. A lack of perceived credibility in the new category, which then caused a negative feedback effect on the parent brand's image. (correct answer)
  4. An ineffective distribution strategy for the energy drink, which led to poor brand visibility in a crowded market.
Explanation: This is a two-step problem. The initial failure was due to a lack of brand credibility or 'fit'—consumers didn't believe a shoe company had the expertise to make a good energy drink. The second step was the negative feedback effect (or brand dilution), where the failure and perceived incompetence in the new category harmed the reputation and key associations ('technologically advanced') of the parent brand. The other options describe operational (A, D) or incorrect branding (B, as cannibalization is illogical here) issues, while the stem points directly to a problem of consumer perception and its consequences.

Question 11

Historically, one of the most cited examples of a brand extension failure was when Colgate, a brand synonymous with toothpaste and oral hygiene, launched a line of frozen dinner entrees called 'Colgate's Kitchen Entrees.' The product was quickly pulled from the market.

What was the most fundamental branding error that led to this failure?

  1. The brand's core associations of 'cleanliness' and 'minty flavor' were highly incompatible with the sensory experience of food. (correct answer)
  2. The extension's price point was too high compared to established competitors like Stouffer's or Lean Cuisine.
  3. Colgate lacked the established frozen food distribution network necessary for a successful supermarket launch.
  4. The line extension was too similar to Colgate's existing products, causing consumer confusion about its purpose.
Explanation: Brand extension questions test your understanding of how consumer perceptions and brand associations affect new product success. When evaluating extension failures, focus on the psychological connection between the parent brand and the new category. The Colgate frozen dinner failure illustrates a classic brand association mismatch. When consumers think of Colgate, they immediately associate it with mint flavoring, mouth cleanliness, and oral hygiene. These powerful sensory associations create a psychological barrier when transferred to food products. Imagine seeing "Colgate" on a dinner entrée—your brain automatically connects it with toothpaste flavor and the act of cleaning your mouth, making the food seem unappetizing. This fundamental incompatibility between oral hygiene associations and food consumption made option A correct. Option B incorrectly focuses on pricing strategy. While price matters in competitive markets, it wasn't the primary issue—the product failed before price could even be evaluated by consumers. Option C suggests distribution problems, but Colgate had sufficient resources and retail relationships to secure frozen food placement. The core issue wasn't logistics. Option D misunderstands the problem entirely—frozen dinners weren't similar to toothpaste, so confusion about product purpose wasn't the issue. When studying brand extensions, remember this key principle: successful extensions require compatible brand associations. Extensions work best when the parent brand's core attributes logically transfer to the new category (like Honda moving from motorcycles to cars—both require engineering reliability). Always ask yourself: "Would consumers find this combination natural or jarring?"

Question 12

Under which of the following market conditions would launching a series of line extensions be the most inadvisable brand strategy?

  1. When the parent brand's identity is powerfully and narrowly associated with a single, specific benefit. (correct answer)
  2. When the brand is in the maturity stage of its life cycle and needs to stimulate renewed interest.
  3. When the cost of introducing each new item is high, requiring significant capital investment.
  4. When the target market for the proposed extensions is demographically distinct from the core product's users.
Explanation: Line extension strategy requires careful consideration of brand identity strength and market positioning. When evaluating whether to extend a brand into new products, you must assess how the parent brand's associations will transfer and whether they'll help or hurt the new offerings. Option A represents the most problematic scenario for line extensions. When a brand has a powerfully narrow association with a single benefit, extending into other categories can severely dilute that focused identity. For example, if consumers strongly associate your brand with "premium performance," extending into budget or convenience categories would contradict this core perception and weaken the brand's positioning power. The narrow focus that made the brand strong initially becomes a liability when trying to stretch into different territories. Option B is actually favorable for extensions—mature brands often benefit from line extensions to reinvigorate growth and attract new customers while leveraging existing brand equity. Option C describes a financial consideration rather than a strategic brand issue; high costs don't make extensions inadvisable if the brand strategy is sound and ROI projections are positive. Option D presents an opportunity rather than a problem—reaching demographically distinct segments through extensions can be an effective growth strategy, provided the brand values resonate across segments. When studying brand extension strategy, remember this key principle: the stronger and more specific a brand's identity, the more careful you must be about where you extend it. Powerful, narrow positioning is both an asset and a constraint—it gives you strength in your core area but limits your expansion options.

Question 13

A company renowned for its durable, high-performance power tools for construction professionals is evaluating four potential brand extensions to leverage its strong brand equity.

Which of the following proposed extensions presents the greatest risk of failure due to a lack of perceived fit with the parent brand's core identity?

  1. A line of rugged, steel-toed work boots designed for safety on job sites.
  2. A series of professional-grade, heavy-duty mobile toolboxes and storage systems.
  3. A collection of delicate, artisanal glass figurines for home decoration. (correct answer)
  4. A range of high-lumen, weather-resistant LED work lights and flashlights.
Explanation: The core brand identity is built on attributes like 'durable,' 'high-performance,' 'rugged,' and 'professional.' Options A, B, and D all align well with these attributes and the target audience. Option C, 'delicate, artisanal glass figurines,' represents a complete contradiction to the brand's established identity. Consumers would likely not find the brand credible in this new category, leading to a high risk of failure and potential confusion or ridicule that could harm the parent brand.

Question 14

A successful company sells a popular brand of organic plain Greek yogurt. To grow the brand, management plans to launch three new items: (1) a strawberry-flavored version of the Greek yogurt, (2) a line of yogurt-based salad dressings, and (3) a children's book series featuring a cartoon yogurt character named 'Yolksy.'

According to standard marketing definitions, how would these three initiatives be classified?

  1. All three are line extensions because they use the same parent brand name.
  2. 1 is a line extension, while 2 and 3 are brand extensions into new product categories. (correct answer)
  3. 1 and 2 are line extensions into new flavors and forms, while 3 is a brand extension.
  4. All three are brand extensions because they are new products for the company.
Explanation: A line extension introduces a new item in the same product category (e.g., new flavor, size, form). The strawberry yogurt (1) is a classic line extension. A brand extension uses the brand name to enter a new product category. Salad dressing (2) and children's books (3) are entirely different product categories from yogurt. Therefore, they are brand extensions. Distinctor C is incorrect because salad dressing is a distinct category, not just a new form of yogurt. Distinctor A and D fail to make the critical distinction between same-category and new-category introductions.

Question 15

Despite the significant risks of dilution and failure, companies frequently pursue brand extensions. What is the primary strategic advantage a company gains by using a brand extension strategy versus launching a completely new brand?

  1. It allows the company to test a new product in a low-risk environment before committing a new brand name to it.
  2. It leverages the existing brand's equity and consumer awareness to reduce new product introduction costs and accelerate customer adoption. (correct answer)
  3. It guarantees access to the parent brand's existing distribution channels, regardless of the new product category.
  4. It creates a portfolio effect that isolates the parent brand from any financial losses incurred by the new product.
Explanation: The core motivation for a brand extension is to leverage the awareness, reputation, and loyalty of the established parent brand. This 'brand equity' can significantly lower the marketing costs (advertising, promotion) required to launch a new product and can encourage consumers and retailers to try the new offering more quickly. Option A is incorrect; using an established brand is a high-risk, not low-risk, strategy. Option C is not guaranteed; a brand of car tires may not get access to the same channels as the parent brand of ice cream. Option D is the opposite of the truth; a failed brand extension can directly harm the parent brand's finances and image.

Question 16

A manufacturer of high-end, exclusive sports cars wants to enter the more accessible, mid-priced family SUV market. The marketing team is concerned that launching a 'cheaper' vehicle under the prestigious parent brand name could severely damage its reputation for exclusivity and performance. Which of the following branding strategies would most effectively mitigate this specific risk?

  1. Launch the SUV as a brand extension but market it heavily to a completely different demographic than the sports cars.
  2. Create a sub-brand that is clearly linked to the parent brand (e.g., 'Velocity SUVs by Prestiga Motors').
  3. Develop and launch the SUV under a completely new and separate brand name, with no explicit link to the sports car brand. (correct answer)
  4. Co-brand the new SUV with a well-respected, family-oriented brand to lend credibility in the new market segment.
Explanation: The greatest risk here is brand dilution of the exclusive parent brand. The most effective way to protect the parent brand is to create a 'firewall' by launching the new, down-market product under a completely separate brand name. This is known as a multi-brand strategy (e.g., Toyota creating Lexus, Honda creating Acura). While sub-branding (B) and co-branding (D) can help, they still maintain a link that risks diluting the parent brand. Marketing to a different demographic (A) does not solve the core problem of the brand name itself being on a product with conflicting associations.

Question 17

While a brand extension risks damaging the parent brand by venturing into a new category, a line extension operates within the same category. What is considered the most common and direct financial risk associated with launching a line extension?

  1. Weakening the overall brand image through over-saturation, leading to long-term revenue decline.
  2. Incurring high research and development costs for a product that is too similar to existing offerings.
  3. Alienating loyal customers of the original product who may dislike the new variation.
  4. Cannibalizing sales from existing products in the line, resulting in little to no net increase in sales or profit. (correct answer)
Explanation: Cannibalization is the most frequent and immediate financial risk of a line extension. Because the new product is in the same category, it's highly likely to appeal to the same customers. If it doesn't attract enough new customers to the brand, it simply shifts sales from one of the company's own products to another, often without increasing overall revenue and sometimes lowering margins. Brand image weakening (A) is a form of dilution and a real risk, but cannibalization is a more direct and common financial calculation. R&D costs (B) and alienating customers (C) are possibilities, but cannibalization is the most central risk to the line extension decision itself.

Question 18

The marketing director for 'The Family Table,' a successful chain of mid-priced, family-friendly restaurants, is weighing two growth strategies. Option 1: Launch 'The Family Table at Home,' a line of frozen entrees sold in grocery stores. Option 2: Open 'Table Prime,' a new chain of upscale, fine-dining restaurants.

Which statement most accurately contrasts the primary branding risks associated with these two options?

  1. Option 1, a brand extension, risks diluting the core brand's 'freshly made' image; Option 2 is best launched as a new brand to avoid brand confusion. (correct answer)
  2. Option 1 is a line extension with low risk, while Option 2 is a brand extension that risks cannibalizing restaurant traffic.
  3. Both are brand extensions, but Option 1 risks retailer conflict while Option 2 primarily risks alienating the existing customer base.
  4. Option 1 is a safe diversification strategy, while Option 2 is a risky line extension that would not fit the company's capabilities.
Explanation: When evaluating growth strategies, you need to distinguish between different types of brand strategies and their associated risks. A line extension uses the existing brand name for products in the same category (like new menu items), while a brand extension stretches the brand into a different product category or market segment. Option A correctly identifies the key branding dynamics at play. "The Family Table at Home" frozen meals represent a brand extension into retail grocery products, which creates a fundamental contradiction with the restaurant's "freshly made" positioning. When customers see frozen versions of restaurant food, it can undermine their perception that the restaurant serves fresh, quality meals. Meanwhile, "Table Prime" should indeed be launched as a separate brand because the upscale positioning is so different from the family-friendly original that using the same name would create confusion about what "The Family Table" actually represents. Option B incorrectly classifies the frozen meals as a low-risk line extension, when it's actually a high-risk brand extension into a conflicting product category. Option C misidentifies both strategies as brand extensions and focuses on secondary risks (retailer conflict, customer alienation) rather than the primary branding concerns. Option D completely reverses the risk levels, calling the problematic frozen food strategy "safe" while mislabeling the upscale restaurant concept as a "line extension." Study tip: Always ask yourself whether a growth strategy maintains or contradicts the brand's core positioning. Extensions that create logical contradictions (like "fresh" restaurants selling frozen food) are typically the riskiest from a branding perspective.

Question 19

Prior to a new product launch, 'CrispCo' sold 2 million units annually of its only product, a premium sea salt potato chip. The company then launched 'CrispCo Tangy Dill,' a new flavor, as a line extension at the same price. In the year following the launch, total unit sales for the CrispCo brand were 2.4 million units. The new 'Tangy Dill' flavor accounted for 800,000 of those units sold.

Based on this sales data, what was the rate of cannibalization for the 'Tangy Dill' launch?

  1. 50%, indicating that half of the new flavor's sales came from existing customers. (correct answer)
  2. 20%, indicating that 20% of original sales were lost to the new flavor.
  3. 80%, indicating that the new flavor captured 80% of the brand's growth.
  4. 100%, indicating that all sales of the new flavor were incremental.
Explanation: When analyzing line extensions, cannibalization measures how much a new product steals sales from existing products in the same brand family. You need to determine what portion of the new product's sales came at the expense of the original product. Let's work through the calculation step by step. Originally, CrispCo sold 2 million units. After launching Tangy Dill, total brand sales reached 2.4 million units, with Tangy Dill contributing 800,000 units. If there were no cannibalization, you'd expect total sales to be 2 million + 800,000 = 2.8 million units. However, actual total sales were only 2.4 million units. This means the original product's sales dropped from 2 million to 1.6 million units (2.4 million total - 800,000 Tangy Dill), a loss of 400,000 units. The cannibalization rate is calculated as: cannibalized sales ÷ new product sales = 400,000 ÷ 800,000 = 50%. This confirms answer A is correct. Answer B incorrectly calculates 20% by dividing the sales loss by original sales (400,000 ÷ 2,000,000), but cannibalization rate specifically measures the proportion of new product sales that came from existing products. Answer C misinterprets the 80% figure, which represents the incremental sales portion, not cannibalization. Answer D is completely wrong since 100% cannibalization would mean zero incremental sales. Remember: cannibalization rate = (original product sales lost) ÷ (new product sales). This metric helps companies evaluate whether line extensions truly grow the business or just redistribute existing demand.

Question 20

A company's flagship smartphone, the 'Helio Pro,' sells for $1,000. To compete at a lower price point, the company launches the 'Helio Lite' for $600 under the same brand family. After one year, total unit sales for the 'Helio' brand are flat compared to the previous year. However, internal data shows that 70% of 'Helio Lite' purchases were made by customers who had previously purchased 'Helio Pro' models, and the brand's overall profit margin has decreased significantly.

This outcome is a classic example of which branding decision risk?

  1. Brand dilution, as the lower-priced model has reduced the brand's perceived prestige.
  2. Market saturation, where the overall demand for smartphones has reached its peak.
  3. Line extension cannibalization, where the new product's sales come at the expense of the existing, higher-margin product. (correct answer)
  4. Negative feedback effects, where the failure of the 'Lite' model has harmed the 'Pro' model's reputation.
Explanation: The scenario describes cannibalization perfectly. The new product, a line extension (a new item in the same product category), did not generate significant new sales for the brand overall (total sales are flat). Instead, it prompted existing customers to switch from the high-margin 'Pro' model to the low-margin 'Lite' model, directly eating into the profits of the existing product line. While some brand dilution (A) might occur over time, the immediate, data-supported issue is cannibalization. Market saturation (B) is a market-level condition, not a direct result of this specific launch. The 'Lite' model was not a failure in terms of sales, so (D) is incorrect.