The age old question that keeps many an entrepreneur up at night is whether to expand into new categories or if you should stick to what has already proven successful. There is compelling research for larger companies that seems to indicate that in most cases keeping your product assortment within a narrow band of what you know is best over time. (HBR Article- Jan/Feb 2013 - The Grass isn't Greener - Evan Hirsh and Kasturi Rangan). For smaller businesses that are starting out or just hitting their growth stride, I wish the answer was as clear cut. I find that the answer always depends and truly can change based on individual circumstances. As such here are 5 things to think about when considering if and how far to expand your product category breadth.
- Do you have a natural right to win - Is it logical for you to offer it. Meaning will your customers' understand and believe you are credible in that category? At The Tie Bar, we have expanded into other men's accessories such as socks and belts with great success. We probably could expand into offering other men's products down the line but it wouldn't seem logical for us to move into accessories that are marketed primarily to women. You should always know your overall brand standards and stick to them.
- Do you have the right knowledge - Just because the product makes sense in an internal brainstorm doesn't mean you can always pull it off without hurting your overall brand or customer experience. Testing and learning is a great way to figure this out, as is hiring an expert in that area to help lead your expansion. Don't underestimate the learning curve when developing and launching into a new product category. Practice makes perfect and won't always immediately pan out the way you want it to.
- Does it complement your current business - Can you leverage aspects of your current business like selling to your core customer base, utilizing your existing supply chain, or promoting on your existing retail channels and platforms?
- Do you really understand the economics - New categories present opportunities to grow and learn. However, you need to make sure you really understand the economics of the new category. Will you be able to make sufficient margin and dollar profit? As an example, when The Tie Bar considers the possibility of expanding into other men's product areas, we need to consider the economics of a much higher return rate than ties. Factors like fit in relation to the overall customer satisfaction and the added cost to either liquidate a return or recondition for future sale must be taken into consideration.
- Do you need to pivot/expand to survive--Some-times you are just in a dying business and you need to pivot and add new categories to survive. Consider the example of the old bankrupted horse and carriage manufacturers who should have realized they were in the transportation business and not the buggy business. Or in more recent times the folks like Blockbuster Video or Borders that could have pivoted into new categories when they had the chance but missed their opportunity and only suffered for it.
If these types of decisions were easy or obvious you could follow a prescribed formula or checklist. We would not need smart entrepreneurs and leaders to grow and build our businesses for many years to come. My tips above are just the top 5 that I personally consider and the tip of the iceberg for this debate. I am curious what other factors you consider as you face a similar challenges and welcome your thoughts now.