Recently, Al Ries took aim at McDonald’s decision to broaden their menu, saying that introducing more items had not worked as a strategy and would not do so into the future. His piece raised questions for me on the differences between diversification and adjacency.
Both are driven by the wish for growth, and the belief that growth comes from expanding footprint and offering to tap new markets. The difference between them, I would suggest, is that diversification, true to its name, is about looking widely for opportunities while adjacency is more controlled and focuses on finding opportunities that are much closer to the core of the business. In his piece, Ries argues for a third option: intensity. Focus on the popular and profitable and grow that, he suggests. Throwing the net wide, he says, hasn’t worked for McDonald’s, Sears or Yahoo. His thesis: the wider you get, the more unfocused you become.
I’m not convinced that the situation is quite as black and white as Ries paints it. I think all three strategies can work but that the criteria for choosing them need to be defined.
Diversification – go wide if the premise for doing so is big enough to accommodate expansion into new territory and if you have both the brand and the offer to make your presence felt positively across all those markets. Nike has successfully diversified its offer into a plethora of sports activities and beyond because its central purpose gives it a mandate to do so and because the brand can drive on such growth without diluting worth.
Diversification is a strategy for a brand in positions of strength. It is not a strategy that works well for a brand in retreat – because then the effect is exactly as Ries describes. Ironically, it is a strategy that also backfires for brands that are not singular in their focus because then diversification becomes a revenue-gathering exercise rather than the systematic and controlled expansion of the brand to meet a known and distinctive need. Too often, just as he says, brands throw product lines into the mix without thinking through the continuity for the consumer. Everyone is quickly confused. No wonder – in such a scenario, the brand is addressing its need for more revenue lines at the expense of supporting what buyers are looking for.
Adjacency – look for convergence opportunities if you can’t simply stay where you are or if expanding into an adjacent market will meet an unmet need that your brand, with its unique combination of skills, can fulfill in new and exciting ways. There are any number of ways to look at Apple’s strategy but one, I would suggest, is that they used their knowledge and understanding of technology and beauty to redefine first computing and then lifestyle sectors. In each case, through introducing the Apple aesthetic to different technologies, they redefined the appeal for the audience.
Adjacency is a strategy that works well for brands that can take what they are best at into markets where that facet is lacking. Doing so means the brand continues to work from within a skill set where it has marked superiority, and to apply it, with advantage, to unprecedented places. Too often, brands, faced with competitive squeezing, simply look for somewhere to jump without quantifying why they should go there and the unique value they will add through being there. Instead, they bet the house on jumping the fence believing they have the people and the brand to absorb new challenges. They quickly find themselves pitted against seasoned competitors in that space. A market is not new (or worth it) if you are not going to bring something new to it.
Intensity – brands with extended product portfolios should be continually assessing the yields from all their SKUs. Instead of simply continuing to expand in the bid to be even more of a brand for everyone, brands with over-extended offers need to focus their energies on those parts of their overall offer that continue to provide high margin and demand. It’s simply good portfolio management. And part of that, as Ries so rightly points out, is having the discipline and the confidence to extract yourself from markets or parts of the market where presence is diluting your overall focus and effectiveness.
Intensity is a strategy that can make a powerful difference to brands with erratic performances across their variants. By doubling down on what works, the business frees capacity and resources to advance what it is known for and loved for. They’re not easy calls but they’re important ones – because they ensure that a brand always has a clear vision of what is working and what is not, and that the assessment of that effectiveness is consistent.
Perhaps we shouldn’t be thinking in terms of pure options though. Given the pace and extent of change today, brands should probably be looking to employ multiple growth strategies – intensifying their current portfolios through ongoing assessment, and then looking for adjacency and diversification opportunities based on their unique strengths. But, Ries is right, they must focus first, because a brand without focus is a brand without direction and, more importantly, without a core strength on which to base any direction.
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