THE IMPACT OF PRODUCT DIVERSIFICATION ON CONSUMER PATRONAGE

CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY: One of the growth strategies that are included in the corporate level strategy is diversification. Other growth strategies include concentration, merger and acquisition, strategic alliance, and others.  According to Oyedejo (2004), the term "diversification" refers to the process by which a firm seeks to broaden its business operations by including consumer functions, consumer groups, or alternative technology. According to De Wit and Meyer (1998), diversification can take place when a firm joins new operations through internal development or acquisitions. This can result in the expansion of the business, synergy, and a rise in the organization's profitability. As a further benefit, it helps businesses diversify their risk exposure. Diversification is something that organisations pursue because they are motivated by the desire to identify chances for growth and cost efficiency (Chandler, 1962).  According to Thomas and Hunger (2008), diversification takes place when an industry grows and becomes more consolidated. During this process, the firms that survive the industry investigate the limitations of their expansion using both vertical and horizontal tactics. If competitors are unable to expand their operations worldwide into less developed countries, they may be forced to diversify their operations into new industries in order to maintain their growth. The concept of diversity can be approached from a variety of angles. The company manufactures a wide range of goods that are designed to meet the requirements of a diverse range of customer groups, functions, and technology. As an illustration, Unilever Nigeria Plc manufactures items for the food, home, and personal care industries.  The production of a product that does not appeal to the same client group, customer function, or alternative technology is a choice that can be made by an organisation. A.C.U.L. Using Coca-Cola Nigeria Plc as a case study, this research paper will concentrate on concentric or linked diversification as its primary topic of investigation. expanding into the manufacturing of juice and table water (Five Alive) as a means of diversification.

1.1 STATEMENT OF RESEARCH PROBLEM

Organisations are driven by the need to find growth opportunities and cost efficiency, leading them to pursue diversification (Chandler, 1990). This research aims to explore the potential impact of diversification on long-term customer loyalty within the organisation, among other factors. The text addresses the issue of achieving growth and cost efficiency. This research work focuses on investigating and researching the impact of product diversification on consumer patronage.

1.2 OBJECTIVES OF THE STUDY

Every research effort intends to solve and to make recommendations on a given phenomenon. Better still, it is meant to confirm, re-establish or validate known table or thesis. Specifically, the study is meant to achieve the following

1. To know why product diversification occur.

2. To know the relationship between product diversification and consumer patronage.

3. To give a feasible look to the concept of diversification.

4. To give a detailed and in-depth look into the types of the concentric or related diversification as practiced by the coca-cola Nig. Plc. Which diversifies into production of table water.

5. To study the types of diversification report for long profitability in the industry.

6. To examine if risk can be spread using diversification.

1.3 RESEARCH QUESTIONS

1. Does the Coca Cola Nig Plc adopt the product diversification strategy?

2. Does technological branching affect the growth of the firm?

3. Does product diversification lead to consumer patronage?

4. Is Patronage one of the benefits derived by the firm through the use of the product diversification strategy?

5. Did the firm adopt the internal venturing approach to diversification strategy?

6. Did the firm adopt the acquisition approach to diversification strategy?

7. Is there a direct relationship between product diversification and growth of the firm?

8. Does the product diversification strategy help the firm to overcome the growth limit of its economic and industrial environment?

 

1.4 STATEMENT OF RESEARH HYPOTHESES

Based on the purpose of the study, the problems identified and the questions asked the following hypothesis shall be tested.

HYPOTHESIS 1

H1: That diversification is a strategic posture for rebuilding and revitalizing organization businesses.

HO That diversification is not a strategic posture for rebuilding and revitalizing organization businesses.

HYPOTHESIS II

H1: that there is direct relationship between product diversification and Consumer patronage.

H0: that there is no direct relationship between product diversification and Consumer patronage.

1.5 SIGNIFICANCE OF THE STUDY

The significance of the outcome of this study cannot be over emphasized as the result will showcase to different industrial sectors, how product diversification could be effective in business operation. It would also reveal the various methods and approaches to diversification.

The study has these major areas  significance.

• To contribute to or expand the frontiers of the existing knowledge on product diversification

• To sustain existing knowledge and launch a new era for future discourse on the area of study.

• To highlight the usefulness of diversifications in business.

• To awaken the consciousness of business owners on the need to adopt diversification strategy in their business operations.

1.6 SCOPE AND DELIMITATION OF THE STUDY

This research is intended to analyze the impact of product diversification strategy on Consumer patronage as adopted by Coca Cola Nig. Plc which diversifies into the production of table water (Eva water) and the production of juice drink (five alive). As the case study of the project, emphasis shall be laid on the Coca Cola Nig Plc.

1.7 DEFINITION OF TERMS

Corporate Level Strategy: Is the senior management’s game plan for directing and turning the organization as a whole. At the corporate level, strategies refer to the broad line decisions taken at the top level of the entire organization regardless of the number of the different industries in which it competes or how many divisions or business unit has.

Growth strategies: Are strategies used to pursue the growth objective. It includes concentration, diversification, and vertical, integration strategies as well as internal growth, acquisition, merger, joints venture strategies and product and market development.

Diversification: This occurs when a company adds to its business either in terms of customer functions, customers groups or alternative technologies. It is used to identify the directions of development, which take the organization away from its present markets and its present products at the same time.

Related or Concentric Diversification: Here a firm maintained two or more lines of business, which although distinct, still possess some kind of strategic fit. Two business are related if resources can be productively between them.

Vertical Integration: This is a type of related diversification that consists of backward integration and forward integration.

Backward Integration: This refers to development into activities which are concerned with the inputs into the company’s current business. In other words, the company goes further back in value chain of producing its own raw materials, components, machinery, and making its own designs producing its on finance

Forward Integration: This refers to development into activities which are concerned with a company’s outputs, that is, the company goes further forward in the value chain by creating/producing its own transport, distribution, repairs and servicing

Horizontal Integration: This refers to developmentinto activities which are competitive with or directly complementary to, a company’s present activities.

Acquisition: This is an approach to diversification which occurs when a company purchases an established company facilities, equipment, and personnel.

Internal Venturing: This approach involves a company starting a business from the scratch including building facilities, purchasing equipment, recruiting personnel, opening up distribution channels/outlets, and so on.