EFFECTS OF CONCENTRIC DIVERSIFICATION STRATEGIES ON GROWTH OF COSMETIC FIRMS IN NAKURU COUNTY, KENYA

Abstract

Diversification enhances firm performance by adding to shareholder value, increasing product diversity and profitability. This study assessed the effects of concentric diversification strategies on the growth of the cosmetic firms in Nakuru County. Further, the study specifically explored the effect of product diversification, market diversification and functional integration on the growth of the cosmetic industry. The study adopted a descriptive research design and targeted 210 cosmetic firms operating in Nakuru County. Multi-stage and simple random sampling techniques were used to select a sample size of 68 participants. A semi-structured questionnaire was distributed through a drop and pick later method. Moreover, a pilot study was conducted to pretest and validate the questionnaire. The collected data was cleaned and coded then analyzed using descriptive and inferential statistics. From the data analysis, the findings established that offering unique products helps build up competitive advantage (51.7% or mean= 4.486), cosmetic product features determines differentiation and branding of products through distribution channels and customer preferences (60% or mean= 4.086), favorable customer views about a brand and messages have a stronger influence in comparison to competitive brand messages (mean= 4.029), market competition has increased drastically in the cosmetic industry (mean= 4.571), cosmetic firms are continually adopting new strategies to fight risks in the market (mean=3.657), cosmetic firms have produced mass market brands rather than investing in innovation (mean=3.486), teamwork enhances coordination and information sharing for efficient response to the competitive environment (mean=4.402), collaboration vary because of strategic differences in competition postures of cosmetic firms (mean=3.829) and value chain management has enhanced competitive performance by closely joining together or integrating cosmetic firms (mean=4.228). Moreover, the study established that there was a strong, positive and significant relationship between product diversification strategies (r=0.608), market diversification strategies (r=0.713), functional integration (r=0.705) and growth of cosmetic firms. The study concluded that related diversification increases product sales hence growth of cosmetic firms, offering unique products enhances competitive advantage of cosmetic firms, cosmetic firms gain new market share by diversifying into new lines of businesses, because of market risks, cosmetic firms are always adopting new diversification strategies, strategic differences among cosmetic firms results from varied approaches towards competition and cosmetic firms which implement functional integration enhance their performance. The study recommended that cosmetic firms should focus more on diversifying into related product lines to improve their growth, cosmetic firms should always conduct risk analysis before embarking on market diversification and cosmetic firms should conduct follow ups and offer after sales services to build brand loyalty and customer base.