Expansion to enhance market position


Efforts to improve market position provide many examples of the “the whole being better than the sum of its parts.� The leading can companies, for example, moved from exclusive concentration on metal containers into glass, plastic, and paper containers. They expected their new divisions to be profitable by themselves, but an additional reason for the expansion lay in anticipated synergistic effects of being able to supply a customer’s total container requirements. With the entire packaging field changing so rapidly, a company that can quickly shift from one type of container to another offers a distinctive service to its customers.

International Harvester, to cite another case, added a
Tractor to its line a few years ago. The prospects for profit on this line alone were far from certain. However, the new tractor was important to give dealers “a full line�. Its availability removed temptation for dealers to carry some products of competing manufacturers. So, when viewed in combination with other International Harvester products, the new tractor looked much more significant than it did as an isolated project.

Compatibility of Efforts

In considering additional niches for a company, we may be confronted with negative synergy—that is, the combined effort is worse than the sum of independent efforts. This occurred when a producer of high-quality television and hi-fi sets introduced a small color television receiver. When first offered, the small unit was as good as most competing sets and probably had an attractive potential market. However, it was definitely inferior in performance to other products of the company, and consequently undermined public confidence in the quality of the entire line. Moreover, customers had high expectations for the small set because of the general reputation of the company, and they became very critical when the new product did not live up to their expectations. Both the former products and the new product suffered.

Compatibility of operations within the company should also be considered. A large department store, for instance, ran into serious trouble when it tried to add a high-quality dress shop to its mass-merchandising activities. The ordering and physical handling of merchandise, the approach to sales promotion, the sales-compensation plan, and many other procedures which worked well for the established type of business were unsuited to the new shop. And friction arose each time the shop received special treatment. Clearly, the new shop created an excessive number of problems because it was associated with incompatible customs and existing attitudes.