Remember the good old days? You could walk into the local milk-bar and grab a Coke from the fridge. But then came Diet Coke, Coke Zero, Coke with Vanilla, Coke with Ginger, Diet Coke with Lemon, Coke Life and a bunch of other variants. Now, when I order a Coke I’m faced with an overwhelming array of choices.
Clearly, the market thinks so as well. Coke has announced the withdrawal of Coke Life from the shelves. Although they are replacing it with "Coke with Stevia” it highlights what can happen when you over-diversify your product range.
Coke isn’t alone in doing this. When I spoke to a major security software vendor about why they have three versions of their consumer software they were pretty blunt about it. It was simply a strategy to take up more shelf space at retail stores in order to stop their competitors from doing the same.
They knew, in the “good, better, best” product portfolio that most people would pick the middle tier of the product as it balanced the consumer need to not buy the cheapest, and potentially inferior product, with the desire to not get ripped off and pay for “extra” features they didn’t want.
Of course, part of Coke’s problem is their product’s reputation. I can’t think of too many products that have a website devoted to tearing down its reputation with the word “killer” in it.
So, why do companies get drawn into over diversifying their product portfolios? Catriona Pollard is Managing Director of CP Communications. She says there are two main reasons: generating new sales and as a response to competition.
“They’re looking at their sales and say “Sales are going south - I have to do something’. It's either sell new product to existing customers or I can enter new markets with new products. The issue with that is that it’s quite a risky exercise”.
The development of new products can be very expensive and, in many cases, all that happens is the new product cannibalises the sales of other products. Coke Life not only competed with non-Coke brands. It likely took sales from Diet Coke and Coke Zero, which also cater to potential buyers of soft drinks looking for a sugar-free or low-sugar alternative.
One of the problems with Coke Life, says Pollard is “You’re selling a dream that doesn’t exist. The idea that Coke is good for just because it has less sugar, and this idea around the green packaging, I don’t think sits well with their customers. Their customers know Coke is not good for you. That’s not why they are buying Coke”.
Coke Life was about attracting new customers to the Coke brand. that simply hasn’t worked.
Competition, not just with other soft drink brands but also other alternatives such as bottled water, is part of what drove Coke to develop Coke Life. That’s something every business faces. When Uber entered local markets here, they solved the primary issue facing customers of the taxi industry - rapid access to a ride in a clean car.
Adding different coloured cabs to the road doesn’t fix the customer’s problems. Coke has learned that their customers’ problem with Coke isn’t the amount of sugar. The problem is that it’s a product that people simply don’t want because of its reputation.
How do you tell the difference between a good product diversification and a bad one?
Diversification is risk but if you can fill a spot in a market it can drive sales to a point where it has a positive impact on profit. Product-based businesses have to look at diversification as one of their marketing and product strategies,” says Pollard. “That also goes for service-based businesses”.
So, what’s a smart way to diversify your product and service portfolio?
Think carefully and only add products that are better than your competitors' that don’t compete head-to-head with your own products.