Which example best illustrates a line extension?

A line extension occurs when a company introduces a new product that is variations of its existing product line, aimed at leveraging brand equity without altering the core product significantly. In this context, Pepsi adding another flavor of Gatorade represents a direct expansion of their existing beverage line, which already includes Gatorade in several flavors. This strategy allows Pepsi to target different consumer preferences without needing to create a new brand, thus utilizing the established recognition and loyalty associated with Gatorade.

The introduction of a new flavor still falls under the same product category and appeals to current Gatorade users, enhancing the product's versatility and market reach. By building on an existing product, Pepsi employs a strategy intended to attract either a broader audience or specific customer preferences within a product line.

The other scenarios reflect different marketing strategies, such as introducing entirely new product categories or entering new markets, which do not exemplify a line extension.