Why Corporations Are Considering Diversification As A Strategy
There are a number of reasons why corporations may consider diversifying their product offerings. Some of the most common reasons include protecting the business from the competition, increasing profits by having a variety of products stocked, and taking advantage of economies of scale. Additionally, diversifying can be advantageous for a business in terms of improving its reputation and recognition.
Improve Brand Reputation
When a company offers only one type of product or service, it can be difficult for consumers to know what they stand for. By expanding their offerings, companies can show that they are versatile and capable of meeting the needs of a wide range of customers. This can help them attract new customers and build loyalty among those who already use their products or services. Additionally, if one sector of the economy weakens, companies that have expanded into other sectors may be less likely to experience significant financial losses. This is because even if one part of their business is struggling, they will still have other areas that are performing well.
Business Expansion
Expanding a business can be difficult, but there are a few things that businesses can do to make it more likely to succeed. One way to do this is by diversifying into new markets. This means branching out into new business opportunities, not just expanding your existing business. For example, if you own a restaurant, you could offer cooking classes during the mornings.
Brand Diversification
Brand diversification is the process of expanding into new markets and niches with offerings that might be related (but not identical) to what a company has done in the past. There are several reasons why businesses might choose to undergo brand diversification, including staying competitive in an ever-changing marketplace, seeing growth during tough times, and protecting against potential downturns. Ultimately, it’s about finding new ways to reach customers and increase revenue.
Diversification As A Marketing Strategy
Diversification as a marketing strategy is being considered more and more by corporations. The idea behind it is that if a company can produce different products or services, it can target different markets and thus reduce the overall risk of having just one product line. There are two main types of diversification: industrial and differentiated segmentation. Industrial diversification is when a company produces multiple products within the same industry. Differentiated Segmentation Strategy is the idea that corporations can target specific groups of consumers with different marketing strategies.
The Different Diversification Strategies Corporations Are Using
Since diversification is such an important part of growing a corporate business, there are many different strategies that companies use to achieve their goals. Some of the most common diversification strategies used by corporations include:
Concentric Diversification
Concentric diversification can be a great way for a company to grow without venturing too far from its core business. This type of diversification happens when a company expands into new markets that are related to its original business. For example, if a company makes cars, it might expand into products such as tires, batteries or windshield wipers. This can provide protection against changes in the economy or in specific markets. For instance, if the car market declines, the company might be able to make up for lost sales by selling more tires or batteries. However, there are some potential drawbacks to this strategy. First, expanding into new markets can be expensive and time-consuming. Second, companies can struggle if they do not have the necessary expertise or resources to compete in new markets. Finally, if demand for one of the company’s products decreases, it could have a negative impact on profits.
Conglomerate Diversification
Conglomerates are companies that have multiple businesses in different industries. In order to be successful, conglomerates must have a strong management team that can manage the different businesses and makes sure they are profitable. Horizontal conglomerates have businesses in the same industry, while vertical conglomerates have businesses in different industries but at different stages of the production process. However, there are some advantages to conglomerate diversification, such as economies of scale and risk reduction.
Offensive Diversification Strategies
Offensive Diversification is the process of expanding a company’s product line in order to increase profits and market share. This can be done by introducing new products into existing markets or creating entirely new markets with previously untapped resources. Offensive diversification recognizes that there are always new markets and opportunities to explore, and seeks to grow a company’s market share in those areas.
Defensive Diversification Strategies
There are two types of diversification: offensive and defensive. Offensive diversification is when a company expands into new markets in order to grow its business. Defensive diversification, as the name suggests, is when a company expands into new markets as a way to protect itself from threats in its primary market. While defensive diversification can offer some protection, it has several potential drawbacks. For example, a company may spread itself too thin by expanding into too many new markets. Additionally, they can dilute resources by focusing on multiple businesses at once and may cannibalize their own sales by competing with their own products in new markets.
Common Diversification Tactics
There are a variety of reasons why companies may choose to diversify their businesses. However, one of the most common reasons is to build reputation and recognition. By being known in multiple industries, companies can make it more difficult for competitors to encroach on their turf and also increase the chances that consumers will remember them. There are a number of different ways in which companies can pursue diversification, but some of the most common tactics include expanding into new geographical markets, entering into new product categories, and acquiring other businesses. Now that we’ve discussed the more prevalent strategies, let’s dive deeper into some specific tactics that companies are using to diversify themselves.
Ansoff Matrix
The Ansoff Matrix is a strategic planning tool that businesses can use to consider their growth options. It plots four possible growth strategies against two axes: market penetration and product development. Market penetration involves selling more of the same product to the same customers in the current market, while product development means creating new products for new markets. Diversification is riskier than market penetration but has higher potential rewards, while market development is less risky but also has lower potential rewards. Using the Ansoff Matrix, businesses can consider whether they should focus on developing their current products or services, expanding into new markets with those offerings, or creating entirely new products and services to sell in either old or new markets.
Vertical Diversification
Vertical diversification occurs when a company owns businesses in different stages of the production process. For example, an electric utility may have both generation and distribution businesses. This allows the corporation to take advantage of economies of scale, which is the cost advantage gained by large-scale production. The utility may be able to produce electricity more cheaply through its own generation business than it could purchase it on the open
Horizontal Diversification
Horizontal diversification is the least risky form of diversification and is often desirable for companies because it allows them to offer products that are related to their original product. This type of diversification occurs when a company introduces unrelated products that meet the needs of its existing customers. A famous example of this is the “Kleenex” brand of facial tissue, which was introduced by Kimberly-Clark Corporation. Kleenex were originally tissues sold to hospitals and doctors’ offices in boxes that contained 100 tissues. Kimberly-Clark Corporation noticed that many customers were stealing the boxes of Kleenex for personal use and decided to develop a box of facial tissue that could be sold in retail stores. This new product was named “Kleenex” and the company began to advertise that Kleenex was softer than other brands of facial tissue. This strategy allowed Kimberly-Clark Corporation to build upon its existing product by expanding the product line, increasing demand and building brand recognition.
Enhanced focus on Corporate Social Responsibility
An emerging trend in corporate diversification is to ensure that all diversification tactics consider the Social and Societal implications of expanding their business. In fact, many corporations are now adding a Social and Societal purpose to their business plan.
The social purpose of the company is usually articulated in terms of “doing well by doing good” or “creating a better world.” In order to meet their social mission, companies are engaging in activities that both increase the profitability of the company and also improve society. There is growing data that suggests that a Business’s CSR, or Corporate Social Responsibility, reports are being considered for many top-level business decisions in the corporate world, and this is a trend we expect to see continue. There are a number of additional benefits of corporate social responsibility that you can read about here.
Examples Of Successful Corporate Diversification
Disney
Disney was founded in 1923 by Walt and Roy Disney as the Disney Brothers Cartoon Studio. The company became a leader in the American animation industry and, in order to expand its business, it diversified into live-action film production, television, and travel. Additionally, it operated under different names including The Walt Disney Studio and Walt Disney Productions. In 1986, it took on its current name and expanded its operations even further. This included starting divisions focused on theater, radio, publishing, online media, theme parks (including Disneyland), and consumer products.
Apple
Apple is a technology company that was founded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne. The company started out as a computer hardware manufacturer, but it has since expanded into other markets, including software, telecommunications and entertainment. Apple’s success can be attributed to its ability to identify new opportunities and capitalize on them quickly. The company has also been able to maintain a strong brand identity that resonates with consumers.
Amazon
Since Amazon first went public in 1997, it has been a leading innovator in the e-commerce space. The company’s founders had a bigger vision for Amazon than just being an online bookseller – they saw it as a platform that could be used to sell anything. And over the years, Amazon has never been afraid to experiment with new products and services, even if they don’t always succeed. This willingness to take risks has helped Amazon stay ahead of its competitors.
Clearly, diversification is a sound business strategy that can be used to create growth for your company. This can involve expanding the products or services that your company offers in order to reach new markets. It is important to note that there are both risks and benefits associated with this type of expansion, so it is crucial to do your research before making any decisions. Additionally, it is important to determine which type of diversification would be best for your company. Diversification can be a costly mistake if not done correctly, so make sure you take all of these factors into account before moving forward.