Element Of Marketing

ASSIGNMENT.

ELEMENT OF MARKETING (MKT 502)

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Product Diversification, Merits and Demerits Diversification is a form of growth marketing strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry in which the business is already in. At the corporate level, it is generally and its also very interesting entering a promising business outside of the scope of the existing business unit. Diversification is part of the four main marketing strategies defined by the Product/Market Ansoff.

Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. Therefore, diversification is meant to be the riskiest of the four strategies to pursue for a firm. Types of product diversifications: There are three types of diversification: concentric, horizontal and conglomerate: 1. Concentric diversification This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. 2. Horizontal diversification The company adds new products or services that are technologically or commercially unrelated (but not always) to current products, but which may appeal to current customers. In a competitive environment, this form of diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. 1

ASSIGNMENT.

ELEMENT OF MARKETING (MKT 502)

3. Conglomerate diversification (or lateral diversification) The company markets new products or services that have no technological or commercial synergies with current products, but which may appeal to new groups of customers. : Merits of product diversification: a. To secure supply of components or raw materials with more control. Supplier bargaining power is reduced. b. Strengthen the relationships and contacts of the manufacturer with the final consumer of product. c. Win a share of the higher profits. d. Pursue a differentiation strategy more effectively. e. Raise barriers to entry. Demerits of product diversification: a. Over-concentration - A company places too many bets on ‘a same end-market product’ b. The firm fails to benefit from any economies of scale or technical advances in the industry to which it has diversified. This is why in the publishing industry most printing is subcontracted to the specialist printing firms, who can work machinery to capacity by doing work for many firms.

CONCEPTS OF SOLE FRANCHISING: Responsibility for and influence over individual physical distribution activities are frequently dispersed throughout the organization. This creates stresses and strains, since the production department is usually interested in longer and more stable production scheduling, whilst the finance department wants to reduce costs and inventory investments, and the marketing department believes it needs more inventory and higher levels of customer service. This segmentation of responsibility for distribution and of influence over its major elements also makes it difficult, if not, impossible, to hold any specific individual responsible for particular cost elements, such as transportations, warehousing, or inventory.

SOLE FRANCHISING: The salient features of franchise are the contractual arrangement between central management (the franchisor) and the independent business persons (the franchisees) to operate a specialized form of business., while distributorship simply means arrangements under which a manufacturer grants a distributor the right to appoint sub-distributors within a specified geographical area. 2

ASSIGNMENT.

ELEMENT OF MARKETING (MKT 502)

The main advantages to the franchisor are investments from franchisees, faster growth, and the entrepreneurial spirit of the franchisees. The major advantages to the franchisees are an established name, good training, experience of franchisor, and cooperative advertising. There are, nevertheless, certain disadvantages to the franchisor. These includes some los of control (the franchisees are not employees), and it is harder to maintain uniformity. The major disadvantages to the franchisee include strict rules, limited decision-making ability, and payments to the franchisors.

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