Manufacturers and product suppliers with a strong market share in their selected segments often enjoy good profitability but find it hard to achieve strong growth without diversifying into new product segments where their established competitive advantage may no longer apply. One tactic to overcome this problem is for companies to expand the functionality of their offering to provide a more complete solution to customers' needs. In this column, Stuart Jackson considers a range of examples where companies that started with an emphasis on manufacturing or distributing product have successfully broadened their offering to include a range complementary services. The author then proposes four key questions for companies considering going down this path.
In this article, Jackson considers service expansion strategies for companies in a number of different industries, including medical products, retailing, printing and photocopying, package shipping, processed foods and IT. Jackson then draws lessons that can be applied broadly across any business considering value added services as a way to provide new sources of profitable growth.
Just because you have exhausted opportunities to gain market share in your selected industry segment does not mean you need to diversify into unrelated markets in order to tap new sources of growth. Adding new services that provide a more complete solution to customers' needs can be a way to add new revenues from your existing customer base while at the same time cementing a deeper relationship with customers that can differentiate your firm from competitors. However, this path is not for everyone and may only make sense if the opportunity meets certain key criteria relating to customer needs, competitors and management capabilities.
By looking in detail at when value added services do or do not make sense, this article provides valuable insights into how to understand and predict when new service offerings will support increased competitive advantage and value creation.
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