Blog post by: Melissa Ignasiak
When a company is looking to increase profitability, one growth strategy that is considered is diversification. Under this strategy, a company will introduce a new product to a new market. If done correctly, diversification can allow company to gain new consumers and expand their market share in a particular industry. However, this is one of the riskiest moves that can be made. Going into an unknown market with an unfamiliar product puts the company at great uncertainty, which can often lead to a failed product.
In 1992, Pepsi tired to enter the health and fitness market and introduced
Crystal Pepsi. Pepsi wanted consumers to think that because Crystal Pepsi was clear, it was healthier. This new product had the exact same flavor, coloring and amount of caffeine, yet it was pulled from the market after a little over a year. This failure can be contributed to the lack of market research Pepsi conducted before launching their product.
Market research is the process of gathering data on goods and services to determine whether the product or service will satisfy the needs of customers. Market research can identify market trends, demographics, and customer buying habits. This information can be found through the use of surveys, focus groups, personal interviews, observation, and field trials. Market research can help a company keep up with market trends and maintain a competitive advantage. Although it can be very time consuming and expensive, market research can be the difference in the success and failure of a product.
If Pepsi had focused more on market research, it may have noticed that those who were concerned with their health probably were not soda drinkers to begin with. Consumers who preferred a “Cola” continued to buy a dark product and those who preferred a clear product continued to buy 7-up and Sprite. Unfortunately, Crystal Pepsi did not appeal to anyone.
Concentration on market research could have also revealed that drink color was psychologically associated with the negative reaction. Although it tasted exactly the same, the clear color literally confused consumers. While Crystal Pepsi did well in the initial test markets, actual consumers were expecting to taste the lemon taste associated with clear sodas. When it tasted the same, they were unimpressed and confused.
Although Crystal Pepsi failed after only a year on the market, it set a good example to other companies. Their failure was the perfect example of “if it’s not broke, don’t fix it”. Pepsi had a very good and stable consumer market before the launch of Crystal Pepsi. There was no need to expand into a new market other than to increase an already high profit. This also expressed the importance of market research. Even though this product was initially tested, Pepsi was very unprepared to produce to this particular market. Market research can contribute to the success of expanding through diversification, but there are also other expansion options that can better fit a company’s desire to increase profitability.
Sources:
http://www.growthink.com/content/10-famous-product-failures-and-advertisements-did-not-sell-them
http://en.wikipedia.org/wiki/Diversification_(marketing_strategy)#Goal_of_diversification
http://www.retrojunk.com/content/article/7422/index/
http://www.espotmi.org/mrktng/overview_mrsh/mr_importance.html
http://astronasty.blogspot.com/2012/03/why-it-failed-bring-back-crystal-pepsi.html
http://childrenofthenineties.blogspot.com/2009/04/crystal-pepsi.html
http://www.smallbusiness.wa.gov.au/market-research/
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