Table of Contents
The growth objectives of a firm are quite restricted when the established product lines crosses its growth limit. These objectives are further depressed when the company faces problems in maintaining its market share or is on the verge of dying. In such circumstances, its future can be safeguarded, if adequate and timely decisions are taken on the diversification of the product line. The product line diversification takes place when the company seeks to enter new market segments with a completely different product or products. Generally speaking, product line diversification policies aim at exploring new avenues of growth opportunities, sales stability and higher profitability. However, the firm’s object in this context varies considerably. Some firms give due importance for diversification in order to survive while others diversify to grow and prosper; and yet others to reduce their costs. In the present case, when competition is very intense, “diversify or die” becomes the need of the hour for the marketers. Marketers have identified five ways of diversification. These are:
1. Synergistic Diversification
In synergistic diversification, new products are marketed. When the resources for manufacturing and marketing are highly compatible with the existing resources of the firm, the synergies sport from commonalities in the production process R & D facilities, sales-force competence, and distribution network. The Bush Company, by resorting to synergistic diversification, has profitably expanded its market for a wide variety of its products, such as radios, transistors, two-in-one, three-in-one recorders, TV (colored and black and white) and videos.
2. Conglomerate Diversification
Conglomerate diversification is designed to take advantage of growth opportunities without bothering about any synergistic effect. Under such a diversification programme, although financial considerations are dominant, product consideration does play a vital role.
3. Product Line Extension
Product line extension is another form of diversification that aim at reaching those market segments which the firm has not yet penetrated. Product line extension may be valid if it is an area in which the consumers enjoy a wide variety of brands to choose from and are accustomed to switch over from one to another, or if the competitors lack a comparable product or if they have themselves expanded into these areas. The Bakeman, the well-known biscuit producers, have extended their product line by adding bread, cake and confectionery to their existing line. Similarly, VIP, a leading producer of vests and briefs, has added socks and panties to its product line. Extension in the present product mix may be done by increasing the number of lines and / or the depth within a line. Such new lines may be related or unrelated to the present products. For example, a large provision stores may add drugs, cosmetics and housewares (width), while at the same time, increasing its assortments of dry fruits, baby foods, detergents (depth), etc.
4. Product Proliferation
Proliferation is a limited form of diversification. It involves the development of new varieties of an initial product or of take-offs that are similar to that product (not being a new product). When the manufacturer of biscuits adds a new flavor, such as orange or pineapple, there is a product proliferation, for there is nothing new to be mastered or risked.
5. New-Field Entry
It involves the entry of a firm in those categories of products which are new to it. In this type of diversification, the firm starts producing those goods which are quite unrelated to its product line. For instance, a confectionery firm may diversify its product line by producing frozen foods or soaps, etc. The Bakemans, well-known biscuit manufacturers, have profitably expanded their export market by diversifying into soap and detergents. Similarly, the Reliance Group, besides producing textiles, caters to the needs of the chemicals market.
A firm may resort to more than one type of diversification at a time. For instance, a paint manufacturer may, for a long-range product, think of entering the market for Sunmica; for an intermediate range, it can go in for paints that are pollution-resistant. On a short-term basis, it may diversify into the production of bright and sophisticated looking paints which bear more a bright and pleasing look.
Occasionally, there are some specific reasons for resorting to diversification. For instance, textile industries producing sarees may find it desirable to bring out sarees of different types to cater to the needs of different classes of buyers. Lakme, by diversifying, has profitably extended its export cosmetic market.