Dynamic product proliferation and firm performance implications

Product proliferation is a product strategy whereby a firm increases the number of products it offers to attract and satisfy diverse customer needs, to create barriers to entry, disperse risk, and develop economies of scope. Despite the importance of product proliferation decisions for firm performance, and significant extant research, the performance consequences of product proliferation activities are unclear, with equivocal results emerging in the literature. Adopting a dynamic approach, we specify the conceptual domain of product proliferation and explore different facets (within-niche, new-niche) of product proliferation. In doing so, this research aims to develop a better understanding of the benefits and/or drawbacks of product proliferation activity and develop a model that explicitly considers nonlinear relationships and articulates the impact of potential moderators. The moderators explored include:scopification (a variable that captures how product expansion occurs), which can create managerial complexities, and potentially erode performance outcomes of product proliferation; R&D expenditure (a proxy for firm R&D effort), which could support the development of both new technology (exploration) and better application of the existing technologies (exploitation) and, thus, enhance product proliferation performance outcomes; marketing expenditure (a proxy for marketing efforts), which could support product promotion and increase the performance outcomes of proliferation efforts; product cannibalisation, where sales and market share outcomes are eroded due to the lack of difference between the new and existing products; and intensity of competition (the level of competition in a market), which requires different market research costs and the costs of market research in a low competition market might be lower, and thus enhances the outcomes of proliferation. This research aims to make an academic contribution by describing two key facets of dynamic product proliferation, explaining how these may shape performance, and exploring the potential moderators that determine the performance consequences of product proliferation strategies. As a result, the study will also make a managerial contribution by providing information that managers can feed into the design of product portfolios, that can shape organisational innovation policy, and that can help managers allocate business resources more effectively.