Sunday, April 30, 2006

Dangers of Extending into Vertical Markets

A friend of mine works for a successful B2B service company that dominates in the automobile market. Their technology and business model need not be specific to the automobile industry, so they are planning to extend into other vertical markets.

I am worried they will encounter two major challenges:
  1. Dilution of their brand.
  2. Market understanding.
As the company extends into new vertical markets, they should probably create a new brands for each vertical market. But I doubt they will. If they don't, they will dilute what is now a powerful brand in the automotive industry.

While I don't doubt the company's technology and business model is relatively independent of their vertical market, a company that pays little attention to the special needs of a market will inevitably suffer. I hope the company will conduct some solid market research and be prepared to make changes and additions to their technology infrastructure to adjust to the research findings.

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