Heinz and Glaxosmithkline – Balancing Diversification

While Heinz and Glaxosmithkline (GSK) appear to be two heterogeneous companies – the former is food processing company while the latter is a pharmaceutical-focused conglomerate  – they have both utilised diversification strategies in recent years.

As per Ansoff’s matrix, below, diversification is where a company launches – or acquires – a new product/brand in a different market.  Depending on how much experience the company has with the new product or marketing, ‘diversification’ can be considered to be related or unrelated.

However, while Heinz have thrived, GSK have turned their diversification strategy on its head with a planned sale of its Ribena and Lucozade brands.

But what lessons marketers learn from this?  What is the main success factor for the implementation of a diversification strategy?

I believe that – nine times out of ten – a successful diversification strategy depends on striking a balance between utilising a firm’s competencies while also expanding to take advantage of new opportunities.  If you like, this can be considered to be the ‘Goldilocks’ Zone’ of diversification: the strategy should avoid being too similar to current products/markets, and at the same time it should not be too dissimilar from current products/markets.

GSK, unfortunately, appears to be recognising that the firm’s Lucozade and Ribena brands are too-divergent from their mission to help people ‘feel better and live longer’.  Namely, it seems contradictory for a pharmaceutical company to sell and endorse products that have been criticised for their sugar content. This conflicting portfolio is only set to become more evident in the near-future as GSK plans to focus more on consumer health in emerging-markets, where Lucozade and Ribena are weak brands.

Heinz, in contrast, has become general food product giant through continuous diversification.  For instance, if we take a look at the firm’s history, Heinz started with horse radish in 1869, tomato ketchup in 1876 and baked beans and tomato ketchup in the 1910s.  The range of condiments and soups continued to expand throughout the 20th Century.  And still today Heinz diversifies with more bean-variants like Heinz Five Beanz; this product, as the name suggests is a new mixture of five types of beans.  Five Beanz is designed to target the new market – created by the pro-longed recession – of adults that can no longer afford to eat out but want an exciting, new meal that is easy to prepare at home.  Further to this, Heinz has also recently launched a range of spicy sauces.

Hence, while GSK has expanded beyond their core business of health, Heinz’s products are all supported by its original, founding principals.  For example, it does not strike one as unimaginable that a horse radish manufacture may also produce a spicy sauce; whereas, it does not appear logical that a malaria vaccine (GSK’s first research project) business would also sell soft and fizzy drinks.

However, I am sure many readers are ready to cite Virgin as an example of a company that has ignored the rules of diversifying not too little and not too much: the Virgin conglomerate is composed of numerous seemingly unrelated businesses.  Yet if you take a closer look at Virgin’s successful brands – Virgin Atlantic, Virgin Active and Virgin Media – at their heart is excitement and great customer service.  Interestingly, one or both of these components appear to have been absent from Virgin’s failed ventures, such as Virgin Cola, Virgin Make-Up and Virgin Megastores.  Therefore, the point I am trying to make is, although Virgin appears to have expanded into unrelated businesses, the successful brands have still retained Virgin’ core values and competencies.  In comparison to most other firms, Virgin’s key skills are highly applicable to a wide range of industries allowing the firm to diversify further than GSK or Heinz.  Thus, Virgin’s successful diversification strategies may be still be considered to be in the ‘Goldilocks’ Zone’.

© Joshua Blatchford, author of Manifested Marketing, 26/04/2013

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  1. Coca Cola – Global Marketing Communications | Manifested Marketing - Marketing Blog

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