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- What is a diversification strategy, its types, and why is it important?
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- Diversification Strategy - organization, levels, advantages, manager, type, company, business
This type of diversification aims at generating additional revenue from your existing customers, while also attracting new customers who may have been interested in your other products but are more swayed by your newer products. An example of concentric diversification would be if a smartphone company began selling smartwatches i. The benefits of conglomerate diversification are high ROI and high growth due to the addition of an entirely new revenue stream in a totally separate market.
An example of conglomerate diversification would be a clothing company branching out into toys. Defensive and offensive diversification are terms that have more to do with why a company wants to diversify, rather than how.
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Offensive diversification, on the other hand, occurs when a company is aggressively seeking to grow its profits and market share through diversifying its product or service line in order to enter new markets and capture more customers. While defensive diversification is a means to stay in business, offensive diversification is a means for a successful, thriving company to grow even further.
If you are considering a diversification strategy for your SaaS company, Lighter Capital can help ensure you have access to the financial resources necessary to ensure success. To learn more about our financing options, take a look at our side by side product comparison or simply apply now to get in touch with one of our financing specialists to help you determine which option is best for your company. View Product Comparison or Apply Now. Diversification can present itself in a variety of different forms depending on the direction a business wishes to move in, and can either be related or unrelated to the current business offering.
If your company decides to add products or services that are unrelated to what you offer currently, but may meet some more needs of your existing customers, this is known as horizontal diversification.
What is a diversification strategy, its types, and why is it important?
This is a different product altogether, but it has the potential to attract many of your existing customers. Concentric diversification occurs when a company enters a new market with a new product that is technologically similar to their current products and therefore are able to gain some advantage by leveraging things like industry experience, technical know-how, and sometimes even manufacturing processes already in place.
Concentric diversification can be beneficial if sales are declining for one product, as loss in revenue can be offset by a rise in sales from other products. An example of concentric diversification would be a computer manufacturer who diversified from clunky desktop PCs into laptop production.
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This would allow them to immediately take advantage of the new wave of computer users who demanded more portable solutions. The term conglomerate refers to a single corporate group operating multiple business entities within entirely different industries. The parent company that owns all of the individual entities is known as a conglomerate, and it became one by successfully implementing a conglomerate diversification strategy.
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An example of conglomerate diversification would be Tata Group , which was founded in and diversified from its humble beginnings as a hotel company into a global multinational encompassing individual companies. It now employs , people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and consumables.
Vertical diversification is also known as vertical integration, and occurs when a company moves up or down the supply chain by combining two or more stages of production normally operated by separate companies.
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This typically means the company decides to start taking over some or all of the functions related to the production and distribution of their core product, such as the purchase of raw material, manufacturing processes, assembly, distribution and sale. There are two forms of vertical diversification, which are identified by the direction you move in the supply chain.
An example of this could be a mining company that decides it wants to expand into processing and development of its raw product. For example, Netflix began as a media distribution platform, but now manufactures its own content. Concentric diversity concerns a growth strategy where any new or acquired products are closely related to existing products or to the companys core competencies.
Diversification Strategy - organization, levels, advantages, manager, type, company, business
This approach allows the company to employ resources and take advantage of existing competencies in introducing the new product. The new products will generally relate closely to existing products or product lines with the purpose of leveraging brand awareness and customer loyalty. It generally involves targeting previously identified market segments that have not been fully addressed. Horizontal diversification concerns the introduction of new products to a new market segment generally forming a new business in the process.
The new products and business, however, are designed to appeal to an existing customer base.
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- CONGLOMERATE DIVERSIFICATION?
- 1. Horizontal Diversification.
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As with concentric diversification, the new products will be closely related to existing products. This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business. An example of horizontal diversification is the when company A, which makes laundry detergent, seeks to enter the market for selling washing machines. Brand recognition and customer loyalty for the detergent may carry over to the business of selling washing machines.
Conglomerate diversification involves launching a new product or product lines that are unrelated to existing products, resources, or core competencies. The company will generally attempt to leverage any brand recognition or customer loyalty in the new market.