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Super Challenges for Super Companies

In the 1980's companies diversified to grow faster and to hedge their bets. They snatched up existing companies or formed new companies that were outside their areas of expertise. Now, companies are pursuing a number of dissimilar market segments, for example, consumer and military. Other companies expand by adding new sales channels that have different dynamics from their traditional channels. Such strategies can work, but they are risky. Before attempting to expand into very different industries or channels, first identify the issues and opportunities associated with these expansionary strategies.

Success in one industry is no guarantee of success in another industry. GE knew how to manufacture washing machines, but couldn't make a success of GE Capital, a division that became a financial albatross when the financial markets collapsed.

Companies that try to serve multiple target markets may satisfy neither. Talbots tried to attract younger, more hip women and found their new fashions pleased neither existing customers nor the younger customers they were pursuing. Sales plummeted.

Distributing goods through new, lower end channels can cheapen your brand. The Jones of New York and Liz Claiborne labels, now available at TJX and Marshall's, have lost their cachet. Land's End, now owned by Sears and sold both Sears stores and online, has also lost its luster. Expanding into new channels could tarnish your image and drive away old customers.

Should You Expand?

To decide whether to expand into a new market, consider market dynamics and your ability to prosper in that market. Here are some questions to think about:

  • Who are the new customers? Do they have unmet needs that you can meet?
  • Will your new strategy allow you to serve these customers and their needs effectively?
  • What sales and marketing support will you need to each the new niche?
  • Do you understand the culture of the new prospects? Can you readily communicate with them?
  • Should you develop new channels? What is the likely impact?
  • How will the focus on a new segment affect relationships with existing customers?
  • Will the new target market be profitable? What hidden expenses will you incur?

We can help you evaluate the consequences of a proposed new strategy.

Copyright 2/12 Ruth Winett. All rights reserved.

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