When it considered diversification targets, Philip Morris believed that the core competence it had developed in marketing cigarettes could apply to other, similar markets. Based on this belief, the company purchased Miller Brewing and then used the Philip Morris marketing skills to move the Miller brand from seventh place to second in its market.2
Case in Point Toyota, Nissan, and Honda
In late 1980s, Toyota , Nissan, and Honda moved into adjacent market segments. They launched luxury cars Lexus, Infinity, and Acura respectively to compete with BMW and Mercedes. The Japanese cars were priced about one-third lower and had a superior service network. The value proposition was solid enough to win over potential and current BMW and Mercedes customers, despite the power of their brands. Yet the Japanese also expanded this profitable segment as a whole.3
Case in Point GE
Jack Welch transformed GE from a purely manufacturing company into a more diversified company with an increasingly important service component. In his 1996 annual report, Welch wrote: "Services is so great an opportunity for the Company that our vision for the next century is GE that is 'a global service company that also sells high-quality products.'" When asked if GE was going to become a more product-oriented or service-oriented company, Welch replied, "It's got to be a big combination... It's an integrated game." In 1996, GE Capital Services earned US$4 billion. In 2005, GE services agreements increased to $87 billion, up 15% from 2004. In particular, financial services revenues increased 12% to $59.3 billion.
