What is Diversification? It seeks t o increase profitability t hrough greater sal es volume o btained f rom new products an d new m arkets. Both are effective growth strategies, but … Diversification is one of the four main growth strategies defined by Igor Ansoff in the Ansoff Matrix:[1], Ansoff pointed out that a diversification strategy stands apart from the other three strategies. Vertically Integrated Diversification: The form of diversification in which the firm intends to enter in … A company needs to choose a path or approach to diversify its business. For example, selling the product abroad, or offering it online in addition to brick and mortar sales. They must find ways to reach new customers and increase profits. Market diversification means extending your business offering to new market segments not previously targeted. Product Diversification (marketing strategy) Diversification is a form of growth marketing strategy for a company. Market development is a growth strategy in which a company tries to sell its current products to new markets. Conglomerate diversification (or lateral diversification). Diversification itself is a critical concept in business management. A diversification strategy is that kind of strategy which is adopted by an organization for its business development. Diversification is a corporate strategy to enter into a new products or product lines, new services or new markets, involving substantially different skills, technology and knowledge. This strategy is riskier than market penetration because you have to develop traction in the new market. For example, when a company that sells good products expands to start selling kitchenware, it will supplyto the same customers in th… You could be losing money on them. Diversity and inclusion should not stand as buzzwords alone; but should be treated as a reflection point where marketers strive for approaches that avoid reductive stereotypes and unintentional perpetuation of classism, racism, sexism, tokenism or ignorance. Add new products to the existing products in similar markets that will serve similar customers through the same distribution system. But the effort needs to be permanent to incite a real step change in people’s attitudes. The existing technical, marketing and financial expertise is applied to new products also. Charlotte Williams is the Founder of SevenSix Agency, the influencer marketing agency with a focus on diversity and inclusion. It can also be a proactive growth strategy. This strategy Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. Ideally, your core business is solidly established before you launch a new product or enter a new market. However, for those organizations that find the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding. Unsystematic riskSystemic RiskSystemic risk can be defined as the risk associated with the collapse or failure of a company, industry, financial institution or an entire economy. You may be able to leverage your existing technologies, equipment and marketing to diversify in this way. Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. Generally, it’s much easier for established brands to diversify laterally than for less well-known brands. Diversification (marketing strategy) From Infogalactic: the planetary knowledge core. Question mark products could turn into stars or dogs. They generate more revenue for your business than you have to spend marketing them. A company may decide to diversify its activities by expanding into markets or products that are related to its current business. For example, an ice cream truck is likely to sell the bulk of its product in the summer. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. Wörterbuch der deutschen Sprache. Ansoff matrix highlights 4 strategies based new & existing markets versus new & existing products. Plan carefully for the greatest payoff. When a company expands into a new industry it does not currently operate in, it is pursuing a strategy of lateral diversification. According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification. Diversification is usually necessary for survival and growth. Or, our shoe manufacturer could open a driving school. Diversify Your Products and services – When you add new products or services that you are going … Therefore, a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth. Diversification is a growth strategy that involves adding products, services and markets to your company's core business. In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion. Diversification can also take the form of brand extension across an apparently unconnected range of products or companies. Usually, the new products are closely related to the current core business, for example: A toothpaste manufacturer adds toothbrushes to its product line. Plug these considerations into his four quadrant product/market matrix, and four strategic directions emerge: Market penetration is the strategy of increasing sales of current products to current markets. Jump to: navigation, search. For example, a PC manufacturer starts producing laptops. Each strategy focuses on a specific method of diversification. Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets. Ray Roc was associated with the rapid growth of the fast-food retail chain in the US and globally in subsequent years. When it comes to diversification marketing, doing all the ‘little things’ adds up to success. Strategies for Diversification. Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs. Ansoff's Product/Market Matrix is the go-to growth strategy planning tool. Diversification allows for more variety and options of products and services. Ideally, a business carries as many cash cows as possible. And the risks are greater the further you move away from your comfort zone. It is helpful to divide diversification into ‘related’ diversification and ‘unrelated’ diversification. The percentage of risk in horizontal diversification strategy is less as compared to the conglomerate diversification strategy because the organization already knows about its existing customers. Indeed, products tend to create or stimulate new markets; new markets promote product innovation. Corporate-level product diversification – Expanding into a new industry that is beyond the scope of the company’s current business unit. It does this by assuming control over an additional production or distribution step. 2. Diversification is a form of growth marketing strategy for a c ompany. And, would you like to extend your product portfolio or not? If done correctly, The strategy in which an organization plans as to how to enter into a new market which the organization is not in, while at the same time creating a new product for the new market. The attractiveness test: the industry that has been chosen has to be either attractive or capable of being made attractive. Diversifikation (oder Diversifizierung) ist in der Betriebswirtschaftslehre eine Strategie von Unternehmen, durch Erweiterung oder Modifizierung der Produkte/Dienstleistungen oder der Geschäftsbereiche oder durch Risikostreuung die Gewinnchancen zu verbessern und/oder Verlustrisiken zu vermindern. If you add up all these base hits, the practice will continue to grow for years. With horizontal diversification, a business can reduce some of its risk exposure while exploiting certain synergies. This can be achieved through competitive pricing strategies, discounts, sales promotions and customer loyalty schemes. For example: 1. It can also reduce costs and remain true to its value chain — the activities a company performs to bring a product or service to the market. Diversification is a form of growth strategy. Horizontal Diversification Strategy. This means that you're offering different products at different stages of their respective life cycles. For instance, the Virgin brand has been stretched across transport (trains, planes, holidays), music (record retail and recording), telecommunications (TV and mobile phones) and financial services. Customers tend to have more confidence in brand names they’re already familiar with, even if they don’t immediately associate the brand name with its new product or service. Perhaps you’ve reached maximum penetration in your existing market or a new, low-cost competitor has stolen your thunder. Product diversification means adding new products or services to expand the business offering within existing markets. Backward vertical diversification happens when the business moves backwards in the supply chain and becomes its own supplier. Diversification places your eggs in many baskets. Because of the high risks explained above, many companies attempting to diversify have led to failure. What Are the Benefits of Concentric Diversification? When you go out in public, most of the time there is a mix of people of different ages, sizes, genders, races, health conditions, religious and sexual preferences and more. To predict which, it helps to understand which way consumer trends are moving. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. Entertainment industry. It's the most uncertain strategy because you’re moving into areas where you have no experience. For example, a company that was making notebooks earlier may also enter the pen market with its new product. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity or instability. Agric. Moreover, a one-trick pony business is extremely vulnerable to factors over which it has no or limited control. Do your market research. Diversification is not just about survival. This also helps the company to tap that part of the market which remains untapped, and which presents an opportunity to earn profits. Diversification plays a crucial role in reducing risks or volatility being an effective means of risk or portfolio management.In this post, we will delve into the world of diversification and understand how important it is for running a successful business. A men's shirt retailer offers a range of complementary ties, cuff links or even suits. This corporate strategy enables the entity to enter into a new market segment which it does not already operate in. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. In addition to achieving higher profitability, there are several reasons for a company to diversify. These are either brand extensions or product extensions to increase the volume of sales and the number of customers. This is called the market related to concentric diversification. But it's not wise to rush in. Diversity in marketing and marketing-related industries has been high on the agenda for most of the past year. Product diversification involves addition of new products to existing products either being manufactured or being marketed. You can use this strategy to take advantage of momentum in a new market, or to minimize the risk of your core market shrinking. Diversification can't protect investors entirely from risk. According to Calori and Harvatopoulos (1988), there are two dimensions of rationale for diversification. What is the definition of diversification? Diversification is a strategy used to expand market share or enter new markets by launching or acquiring new products (perhaps through licensing, merger, or acquisition). This is an example of backward vertical integration. existing product lines appealing to a new group of customers. What Does Diversification Mean? Concentric Diversification is a form of horizontal diversification where the companies perform the following: 1. Diversified Carry Basket: A forex trading strategy in which multiple carry trades are conducted simultaneously in order to limit risk. Diversification is the art of entering product markets different from those in which the firm is currently engaged in. It is helpful to divide diversification into ‘related’ diversification and ‘unrelated’ diversification. Diversification in Strategic Planning. Diversification strategies are used to extend the company’s product lines and operate in several different markets. Diversity (disambiguation) This disambiguation page lists articles associated with the title Diversification. There are three types of diversification: concentric, horizontal, and conglomerate. The company has pursued a diversification strategy, which means purchasing other companies that enable it to bring new products into new markets while remaining true to Disney’s origins. Diversification occurs when a business develops a new product or expands into a new market. Business-level product diversification – Expanding into a new segment of an industry that the company is already operating in. Launching a new product after research and development, market analysis and the production or purchase of goods, is called internal diversification. At some point, you're going to reach maximum penetration and the costs of running your company may outstrip its potential for growth. The technology would be the same but the marketing effort would need to change. This strategy takes place when an organization introduces a new and distinct product to the existing customers. Increase in size expected to infuse economies of scale and scope. Disneyland Toontown. With the right plan in place, you can use diversification to potentially open up profitable opportunities for your business. So you’re not defenseless if one area of your business takes a nosedive. Diversification is a growth strategy that involves adding products, services and markets to your company's core business. Her articles have appeared on numerous business sites including Typefinder, Women in Business, Startwire and Indeed.com. Product development brings new products into existing markets, such as the toothpaste manufacturer creating a line of toothbrushes. In both cases, Avon is still at the retail stage of the production process. 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