To diversify or to stay focused?

Here's a follow up article to What consists of customer's purchasing decision? As mentioned, in the marketplace there are 3 Physics theory that govern it. Now, this is the second theory - Law of market inertia.

Law of Market Inertia: According to the concept of Inertia, if a body is in motion, it will stay in motion unless there are no outside force to make it stop. As for a body at rest, it will remain at rest as long as there are no outside forces to change its state of rest. This when put into marketing terms. it translates that a large company tends to stay in motion whereas a new venture needs to build momentum.

In the business realm, market leaders have an advantage because they already have a strong command in the marketplace and they are already generating sales. A strong competitor usualy has no problems facing their competitors. But launching a new product--even with the best product or a strong dominance in a hungry marketplace-requires surprising energy. As competitors continue to rack up sales by improving what they do best and customers spend their purchasing power elsewhere, inertia is against you.

Companies can manage market inertia through "competitive focus"--or in other words in a niche market. This means creating one unified strategy to concentrate resources and to fortify market position, focusing on one product, one group of customers, and one clear, consistent message. If you divide your energy among many paths, you are stretching yourself too thin, not focussing on your core cash cows. Another thing to keep in mind, the degree of focus required is proportional to company size and competitive forces. The smaller the company and stronger the competition, the greater the focus required to carve out a profitable piece of the market.

Few companies that sell many diverse products can survive well. If you try to recall, most of the great household brands are also companies in a certain niche market. Think Coca Cola for example. Throw lots of pebbles in a pond and you'll cause some ripples, but throw in one big boulder and you'll make a big splash. When you diversify, you are allocating company resources in various directions. This could be a setback as you have many diverse products but they may be more slow-moving as compared to a single-minded highly focused company who actively pursue all marketing strategies, advertising, messages and company resources in one direction, thus making a greater impact.

The downside of inertia is that once you get the ball rolling, changing direction can be difficult. For example, TV Guide has one of the most recognizable brands. But the marketplace has shifted. The company needs to find a foothold in the new multimedia economy. TV Guide's strong brand may speed customer recognition, but how far can they stray from that ubiquitous weekly guide before customers get confused?