ST.

MARY’S UNIVERSITY
FACULTY OF BUSINESS
DEPARTMENT OF MARKETING MANAGEMENT

AN ASSESSMENT OF PRODUCT DIVERSIFICATION ON SALES

PERFORMANCE OF AFRI-HERBAL

Prepared By
1. Dawit Nuri RMKD/ 0903/ 2012 E
2. Herani Zewdneh RMKD/ 1513 /2012 E
3. Miheret Negash RMKD /2189/ 2012 E
4. Mihret Woldu RMKD/ 1076/2012 E
5. Nardos Girma RMKD /1516/ 2012 E
6. Tsinat Fekadu RMKD/ 0935/ 2012 E
7.Yonas Ashenafi RMKD/ 0886/ 2012 E

To Ibrahim Fedlurahman
April 11, 2022
SMU
ADDIS ABABA
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Table of Contents
CHAPTER ONE .................................................................................................................. 1
INTRODUCTION ................................................................................................................ 1
1.1.Background of the Study ..................................................................................................................... 1
1.2 Statement of the Problem .................................................................................................................... 2
1.3 Research Question .............................................................................................................................. 3
1.4 Objective of the study ........................................................................................................................ 3
1.4.1 General objective of the study ..................................................................................................... 3
1.4.2 Specific objective of the study ..................................................................................................... 3
1.5 Significance of the study ..................................................................................................................... 3
1.6 Delimitation of the study .................................................................................................................... 3
1.7 Research Design and Methodology .................................................................................................... 4
1.7.1 Research Design........................................................................................................................... 4
1.7.2 Population and Sampling ............................................................................................................. 4
1.7.3 Types of Data to be Collected ...................................................................................................... 4
1.7.4 Method of Data Collection ........................................................................................................... 4
1.7.5 Method of Data Analysis ............................................................................................................. 5
1.8 Organization of the Study ..................................................................................................................... 5

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 CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
Product diversification is a method that companies use to expand the originally intended market
scope of a product. Usually, product diversification entails adding a new component to an existing
product line, such as new technology, additional sibling products or growing existing product
availability to reach new markets(Indeed editorial team,2001). New products also offer additional
revenue sources and spread risks across multiple products. Business Dictionary also points out
in its definition that seasonal or cyclical companies can add new products as a way to fill in
during off-seasons or slow seasons for their main product. Brands that have a strong recognition
and presence are able to use established brand reputation as part of delivering the message
about new product offerings (Neil Kokemuller,2017).

Entering new markets in related areas and exiting declining markets is critical for organizational
survival and growth, according to authors Helfat and Eisenhardt (2004), who urge us to revisit
the benefits of related diversification by taking a dynamic perspective. The traditional rationale
for the diversified company is that related businesses within the same firm can share resources
and, as a result, the total costs of producing all the various products offered by the company is
lower than that of producing them separately.

Logically, the same economies of scale and synergies that are available to companies that
diversify into different but related industries should also be available to companies which
diversify into other market segments within the same industry. This, at least, is the starting point
of Li and Greenwood’s article (2004), who also believe other benefits accrue to companies that
diversify.

When a company reaches a certain point in its evolution, founders, investors, and executives
often think about planning and implementing a growth strategy, such as diversification.
Diversification strategy is one of the four main strategies for growth which enables companies to
look at other markets they could tap into, or new products they could launch to increase their
reach and revenue (Igor Ansoff,1957)

Hope general trading PLC known in its brand called Afri-Herbal Cosmetics. It started its service
by opening six shops in the capital Addis Ababa around Megenagna, Arat Kilo &Jemmo,
Mexico, Fiyelbet,&Haya Hulet areas. It has also a plan to expand its branches in the Addis
Ababa and other major towns of Ethiopia. The business purpose and objective of Hope general
trading PLC is to produce herbal products using natural ingredients and distribute both in
domestic market. Similarly, the company has a plan to start exporting its products in foreign
market in a very short period of time.

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1.2 Statement of the Problem
Diversification of productivity as well as product is always considered risky. Companies that are
considered to be the market leaders in the segment receive, on average, twice the profitability of
their competitors. On the other hand, for example, all those measures that were designed to
improve the company's image, but ultimately did not, as well as new products that ultimately
flopped, will always be seen as negative examples of diversification. Therefore, before you
introduce a measure of diversification in your business, you must think carefully about the pros
and cons. The question of whether a diversification or focusing strategy is more promising
cannot be answered in the same way for all companies.(Olga Syuzeva, Alexander Zheltenkov,
2021).
One of the most challenging decisions a company can confront is whether to diversify or not to
diversify. Before diversifying, managers must think not about what their company does but about
what it does better than its competitors. (C.Markides,1997)
When facing the decision to diversify, however, managers need to think not about what their
company does but about what it does better than its competitors. In one sense, pinpointing
strategic assets is a market-driven approach to business definition. It forces an organization to
identify how it might add value to an acquired company or in a new market—be it with excellent
distribution, creative employees, or superior knowledge about information transfer. In other
words, the decision to diversify is made not on the basis of a broad or vague business definition,
such as “We’re in the entertainment business.” Rather, it is made on the basis of a realistic
identification of strategic assets: “Our excellent distribution capabilities could radically improve
the performance of the acquired company.”
If managers have cleared the hurdles that the preceding questions raise, they then need to ask
whether the strategic assets they intend to export are indeed transportable to the new industry.
Too many companies mistakenly assume that they can break up clusters of competencies or
skills that, in fact, work only because they are together, reinforcing one another in a particular
competitive context. Such a misjudgment can doom a diversification move.
One of the most challenging decisions a company can confront is whether to diversify or not to
diversify. Before diversifying, managers must think not about what their company does but about
what it does better than its competitors. (C.Markides,1997). Diversification will never be an easy
game, and managers must study their cards carefully. It takes smart players to know when it’s
best to raise their bets and when it’s best to fold. When facing the decision to diversify, however,
managers need to think not about what their company does but about what it does better than its
competitors.
Some company assume that having some of the necessary strategic assets is sufficient to move
forward with diversification. In reality, a company usually must have all of the necessary
strategic asset to diversify a product not just some of them. Therefore the student researcher will
perform to analyze what kind of product diversification the company uses. Understanding of
customer’s view of the product is crucial for the company. The common purpose of the studies in
this area is to better understand the customer opionion about the diversified product.

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1.3 Research Question
1. What are the effects of product diversification on sales performance in case of Afro-
herbal?
2. How did the company manage to diversify its products?
3. What challenges did the company face through the process of diversification?
4. What was the response of the customers?

1.4 Objective of the study

In this part of the research two sub issues arise general objective of the study and
specific objective of the study.
1.4.1 General objective of the study
The general objective of the study is to assess the product diversification of Afri-herbal
Oil Company.
1.4.2 Specific objective of the study
➢ To assess the effect of product diversification on sales performance in case of Afri- herbal
oil
➢ To identify the challenges of depth of product diversification on sales performance in case
of Afri-herbal oil
➢ To examine how product attributes affect sales performance of a firm in case of Afri-herbal
oil
➢ To examine relationship between product diversification and sales performance
1.5 Significance of the study
This research will provide new insights into the effects of product diversification on the sales
performance of Afri-herbal. The other significance of the study enables the company to
understand the relation between product diversification tools and sales performance and helps
them to know the most important product diversification tools used for sales performance. In
addition, findings from this study would assist academicians providing a deeper understanding of
the product diversification that affects the sales performance. Thus, the study would provide
recommendations to the management of the company regarding the improved application of
product diversification.
1.6 Delimitation of the study
The research has been focused on product diversification choosing Afri-herbal oil as its main
focusing area. The study considers how the company diversifies its products and the challenge that
comes along and also the customers’ opinion about the product. To achieve this the research
considered the managers of the company as the respondents at their head office, Megenagna and
customers and salespersons from the dispersed branches, Jemmo, Aratkilo, Mexico, Fiyelbet and
Haya Hulet. Since the company deliver their product at different locations it was difficult to
address all of them so the student researcher was forced to restrict to specific areas. The study
covers the period from 2011-2014E.C to check data from the company.

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1.7Research Design and Methodology
1.7.1 Research Design
The research design is intended to provide an appropriate framework for a study. A very
significant decision in research design process is the choice to be made regarding research
approach since it determines how relevant information for a study will be obtained; however, the
research design process involves many interrelated decisions.
This study employed a mixed type of methods. The first part of the study consisted of a series of
well-structured questionnaires (for management and employee’s representatives) and semi-
structured interviews to the founding members. The other design used an interview of customers to
know how they feel about the many products offered by the organization.
Hence, this study employs a descriptive research design to agree on the effects of product
diversification on the sales performance of Afri-herbal. Saunders et al. and Miller say that
descriptive research portrays an accurate profile of persons, events, or situations. This design
offers to the researchers a profile of described relevant aspects of the phenomena of interest from
an individual, organizational, and industry-oriented perspective. Therefore, this research design
enabled the researchers to gather data from a wide range of respondents on the impact of product
diversification in Ethiopia. And this helped in analyzing the response obtained on how it affects
the sales performance. The research overall design and flow process are depicted
1.7.2 Population and Sampling
In addressing the research question the student researcher has considered the final customer as
respondent in studying product diversification on sales performance of the company. Customer
that visit the branches and use the products have been selected as respondent.
Concerning customer selection, non probability sampling approach was used for the reason that
their exact number and list are not available. This helped to choose samples based on the student
researchers and customer opinion interms of time and space. Because of this the student
researchers has choosen the branch that is found in Jemo 1.
In determining the sample size of the respondent, the student researcher used the Malhotra(2006)
model.
1.7.3 Types of Data to be Collected
Data collection methods were focused on the followings basic techniques. These included
secondary and primary data collections focusing on both qualitative and quantitative data. The data
collection mechanisms are devised and prepared with their proper procedures. The primary data
was obtained from the employees and salespersons precisely. The secondary data was collected
from customers. There was an in depth phone call interview with the marketing managers as they
were not willing to meet face to face due to their tight schedule.
1.7.4 Method of Data Collection
The data were collected by means of questionnaire. First appointment was conducted with the
personal in charge in each branch store to request cooperation and approval for data collection and
survey response.

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1.7.5 Method of Data Analysis
Data analysis method follows the procedures listed under the following sections. The data analysis
part answered the basic questions raised in the problem statement. The detailed analysis of the
effect and challenges faced by the company after diversification was analyzed, discussed,
compared and contrasted, and synthesized.

Qualitative data analysis used for triangulation of the quantitative data analysis. The interview,
observation, and report records were used to support the findings. The analysis has been
incorporated with the quantitative discussion results in the data analysis parts.

Quantitative data were obtained from primary and secondary data discussed above in this chapter.
This data analysis was based on their data type using Excel, SPSS 20.0, Office Word format, and
other tools. This data analysis focuses on numerical/quantitative data analysis.

1.8 Organization of the Study

Four chapters are covered in this paper. It starts with introductory part consisting background of
the study, statements of the problem, objectives of the study, significances of the study and
limitation of the study followed by the second chapter dealing with related literatures that contain
theoretical review, empirical review and the conceptual framework for this study. Chapter three is
about the details of research presenting the analysis and interpretation of data. In chapter four,
summary of findings, conclusion and recommendations by researcher based on the result obtained
from the research was given a room. Finally, the bibliography and appendixes are attached with the
research paper.