Explain Product Simplification, Diversification and Elimination. What are the advantages of Product Simplification and Product Diversification?

An organisation has to continuously evolve to create and modify an offering to stay in the market. With time, consumer preferences change and if an organisations fails to meet the needs and satisfy the wants of the target market, its products will become outdated. For example, Nokia had to face severe challenges and had to be sold off as customers were offered a better offering that exceeded their expectations. It continued with its ‘symbian’ operating system while majority of the consumers preferred ‘android’ and ‘apple’ operating systems. Nokia since losing majority of its market share had been striving to regain that lost position by introducing phones with Windows Operating system and also android operating system on some of its phones.

Basis the market feedback and sales of its products, an organisation adds new products to its product mix or discontinue production of a product.

Product simplification or Product contraction refers to discontinuation of a certain product from a range of products (product mix) by an organisation to thin out the product line.

Product diversification happens when a new product is added to the product mix of an organisation.
Product elimination is withdrawal of a product from the market. Thus, product simplification is achieved by product elimination or termination.

Product simplification and product diversification are opposite to each other. Product diversification is done in two ways – by adding a product to an existing product line and by creating an additional product line. It is done to ensure that the firm doesn’t rely completely on existing products or product lines. For example, Samsung and Micromax added laptops to its existing range of electronic items which is adding a new product to its product line. Mahindra and Mahindra who have their core business of making Tractors and four wheelers started a new product line by getting into two wheeler manufacturing like motorbikes and scooters.

The management of an organisation have to face big challenge in decision making for product simplification and diversifications. There could be a product not doing good and eating away the profits earned by other products. Sometimes these products are marketed for hard core loyal customers. Then there could be products that are profitable but the management believes that the resources used to manufacture this product could be utilised more efficiently to make more profits.

Product elimination is elimination or complete withdrawal of a product from the market. For example, withdrawal of ZEN model of car by Maruti Suzuki from Indian markets. The process of evaluation of a product’s performance falls into the below categories-

1) Performance – sales, market share, costs involved in manufacturing, promotion and profit made

2) Product line/mix – if the product elimination will have impact on the sale or other products (product mix), brand, and customer needs. For example, pharmaceutical companies ensure that their product elimination doesn’t affects the need in the market.

3) Customer need – ability/ inability of the product to satisfy the need of the customer.

4) Operations – impact on manufacturing activity, marketing, resources, management’s and employee’s time, support activities line servicing and maintenance.

5) Distributors and Suppliers – how the product elimination will impact the profits and relationships with suppliers and distributors. The organisation has to assess how they will react to its decision.

6) Competitors – will the product elimination give advantage to competitors?

Advantages of Product Simplification and Product Diversification-

Advantages of Product Simplification –
1) Cost reduction – economies of scale are achieved as this process results in discontinuation of a product or a product line. Various costs related to manufacturing, consultation, promotion, and time are diverted towards other products.

2) Better brand image – as unsuccessful products, which are not accepted in the market on large
scale, are discontinued, the risk of them spoiling the organisations image is reduced to a large extent.

3) Effectiveness in overall activities – the organisation can focus on less products which brings specialisation in all the functions of the organisation.

4) Increase in profits – Low performing products, which were eating into the profits of successful products, when eliminated increase the overall profits for the organisation.

5) Better relations with distributors – the less accepted products in markets when discontinued also help the distributors who usually face the challenge of storing products and convincing buyers to buy the product. The wholesalers and retailers no longer need to invest their time and effort of selling low performing product.

6) Market control – lessening the number of products gives opportunity to the organisation in investing in market research and competitor analysis of few products. The organisation gains advantage with precise and concrete information about the target market.

Advantages of product diversification –
1) Increase customer base – an organisation is always concerned about increasing its market share by increasing its customer base. As preferences of customers keep constantly change, organisations strive to make new products to meet these needs. If an organisation doesn’t get into new product development, it itself will become outdated.

2) Efficiency and effectiveness in the organisation – a constant effort to create new products always keeps the management and its workforce on its toes. This brings improvement and change in its operations. An organisations always grows with its experience it learns from venturing into new products. There is full utilization of the company’s resources to its maximum capacity.

3) Brand awareness into new markets – creating new products or new product line gives opportunities to organisations to enter new markets. This helps organisation to increase its reputation in the market.

4) Brand advantage – Being successful in a market gives an added advantage to the organisation to launch new products. Hard-core loyalist of a certain brand do not hesitate in buying new offerings from the same brand.

5) Increase consumer standards – creating new offerings that the market demands or will demand in near future also benefits consumers. This also improves the standard of living of the society. For example, Apple launching its iPad product was a revolutionary idea.