During America’s Industrial Revolution, various industries became proficient in producing whatever it was they were trying to produce. In fact, they became good enough at producing that they were at the point where they could produce more than the market could consume. Of course, the ability to produce more was a waste if consumers could not purchase at the same rate of growth. This condition was no way to maximize profits. If there was something the industrialists loved more than anything, then it was maximizing profits.
Into this situation walked someone who had a grand idea about how to increase production and convince consumers to increase their purchasing. The idea was called product diversification. When I talk about the Industrial Revolution in class, I use flour mills as examples. I am not sure where they fit into the Industrial Revolution, but it is easy.
In the old days, people went to the store and bought bags of flour. When they got home, the flour would be used to make cakes, cookies, biscuits, pies and all sorts of delicious things. Knowing that their product was used for various things, the leaders of the flour industry diversified. When consumers went to the store, they saw bags of flour. However, they also saw bags of cake mix, cookie mix, biscuit mix, pie mix and all sort of delicious things.
I can see the consumer walking down the aisle. I need flour. Wait, I want to make cookies. I had better get some cookie mix. Hold on, there is the cake mix, I had better get that, too. Oh yeah, I need to make that pie. Instead of purchasing one bag, the consumer purchases several bags. Therein lies the trick of product diversification.
All of this came to mind while my wife and I were shopping for clothes. I needed some new stuff, and today was a good day to get it done. We walked into a store, and I found a shirt that I liked. The resulting conversation went something like this.
“I like this shirt.”
“That’s a summer shirt.”
“Ok.”
“You can’t buy a summer shirt.”
“Why not?”
“It’s not summer.”
“What does that have to do with it?”
“You can’t buy it because you can’t wear it.”
“Why not?”
“It’s not summer.”
“We will have another summer. It’s not like we have seen the last one. Besides, why can’t I wear the shirt anytime I want?”
I stopped because I could tell that she was getting upset, but I still did not understand why I could not buy a shirt and wear it whenever I wanted. Then, it hit me.
Product diversification.
Decades ago, someone in Paris or New York came up with a brilliant idea to increase sales. I cannot remember the last time I listened to what someone in Paris or New York had to say, but that is not the point. The point is that the idea has sunk in. It went something like this.
What if we convince people that they need to wear different shirts for every season. Then, our sales will increase every three months. At some point, this will become the style, and people will be afraid to break it because of peer pressure. If they wear the wrong thing, then other people will think they are not out of fashion.
Now, we have summer shirts, winter shirts, spring shirts and fall shirts. Product diversification was an art form. Then, it became fashionable.
SBI: A Thinning Crowd 