We're all familiar with Colgate products, but few know that in the 1980s, the renowned oral health company entered the food market with a product that failed to catch on. This is what is known as product diversification, and in this article, we explain why its commercialization failed.
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Colgate was founded in 1876 by William Colgate, a Briton based in New York. Initially, it marketed soaps, candles, and starch until 1896. After the death of its founder, it ventured into the production of toothpaste, which is why today the company is known worldwide.
Until 1908 the company remained a family business. It then went public with Colgate's sons as managers. In 1914, Colgate began its international expansion in Canada. In subsequent years, it made its way into the South Pacific and Asia (1921), Europe (1922), Latin America (1925), and Africa (1929). In 1928, the company decided to merge with the Palmolive-Peet company, a soap manufacturer.
It currently belongs to Colgate-Palmolive Company, being a multinational company present in more than 200 countries. Colgate is a benchmark for oral health products throughout the world.
It produces toothpaste, toothbrushes, and mouthwashes. The Colgate-Palmolive group owns other brands such as Plax, Kolynos, and Freska-ra.
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Product diversification is a well-known strategy to expand sales. The company launches a product to expand in search of new markets. Its objective is to achieve greater profitability, creating new products or services.
Diversification can greatly benefit the company. The market, by growing and expanding, expands the niche of consumers as well as their profits. However, it must be strategically thought out so that it is not a failure.
Therefore, diversifying a company is a risky bet and not an easy task. Before carrying out product diversification, it is convenient to ask yourself: How profitable is your business? Will you have the same target audience? What channels will you use?
Product diversification can be horizontal or vertical. By diversifying horizontally, new products are marketed, but they are related to what the company already markets regularly. There is a format change, but the focus remains on the same spectrum. The new product is linked to the main commercial activity. A well-known case is that of PepsiCo, which in addition to marketing the well-known Pepsi drink, chose to enter the snack market with brands such as Lays or Doritos.
On the other hand, in vertical diversification, the company enters into products into which it had not previously ventured. You begin to manufacture products or develop services that you previously needed to acquire from third parties. The products are already part of its production chain. The company can partner with another by becoming its supplier. Or you can also get involved in marketing, logistics, or distribution. An example of vertical diversification happens with Apple. Its best-known product, the iPhone, has its operating system also produced by Apple. This technological giant is in charge of designing, producing, and marketing the iPhone device completely.
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In 1980, Colgate began to diversify its production and launched a line of frozen lasagna onto the market. It seems implausible since Colgate was a leader in oral care products, but not in food.
The idea of the Colgate marketing team was that whoever consumed the lasagna could then brush their teeth with their famous oral products.
In the Colgate case, diversification failed as there was no correlation between the two products or the audience they targeted.
This is an example of failed product diversification. Why? Frozen lasagna was a flop, even though it was the brainchild of a big-name brand like Colgate. It was a risky decision to change products so abruptly, since entering a new consumer segment was not well-positioned.
In the Colgate case, the idea was to unite two markets that were not compatible from the point of view of consumers. The oral health giant wanted to enter the world of frozen food without anticipating if its consumer was looking for that.
This example is useful to illustrate why diversifying production is not always successful, even with a renowned company. Entering other markets is a strong commitment that requires a lot of study and analysis of the needs of that product and consumers.