I'm thinking this is not a particularly good model for sophisticated CPG companies, especially if they are using some brand extension. This is so for two main reasons.
First, companies that rely one an extant sales organization are much better able to establish a wide number of outlets, reducing the search- and word-of-mouth effects.
Second, and more interesting (to me, anyhow), established organizations seem to benefit from a ready understanding by the market of the option value of new product trial.
The intuition is as follows. The market understands that a new product has both risks (overall product liking as well as switching costs, if any exist) as well as benefits (it could be much better). Brand extension serves both to reduce the variance on the prior belief about the liking as well as increase the prior estimate of the expected liking value. Higher expected value plus lower variance equals better deal.
In this case, we would expect the potential for a gain in utility to outweigh the risk for almost everyone who would consider trial of the new product.
It seems to me there are two implications from this thinking. First, such effects must be two-edged: reducing risk for consumers already purchasing something from the line but necessarily increasing risk for outsiders. If so, then trial should be weighted toward cannibalization at a greater than fair share proportion. That's interesting, I think.
Second, this might drastically shorten the length of time that new product promotions should be run: you wouldn't need long promotions if everybody already gets the idea that they should try the product sooner rather than later. In that case, what would matter would be things like watching for inflection points to know when most of the market has already seen the "option" purchasers act.
It would be interesting to look at these sorts of market penetration for line extensions to see when these points happen and how predictive they are of eventual share.
