When Diversification Equals Dilution

Growth. It is the quest that fuels businesses of all sizes. Management and marketing texts tout diversification as a key growth strategy. Tapping into other markets, especially if there are synergies with the knowledge and resources already in place to serve existing markets, is viewed as a way to extend a brand beyond its core market. The theory is compelling, but in practice it often leads to disappointing results.

Case in point: apparel retailer Talbots recently announced that it is closing its men's and children's' stores. The move, while costing Talbots in the short-run, will allow the company on what it does best: serve women's fashion needs. One can hardly fault Talbots for the decision to extend to men's and children's apparel; it represents a significant portion of the population. Also, the Talbots name had accrued a great deal of positive brand equity in the marketplace. In hindsight, it appears the extensions may have taken Talbots' focus away from its core business. As a result, not only were the men's and children's stores unsuccessful, but the core women's stores have struggled, too. If diversification creates a potential situation that leads to strained resources and diluted brand equity, is it really worth it? I think not! Link

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