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The different types of diversification strategies

The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. Generally, the final strategy involves a combination of these options. This combination is determined in function of available opportunities and consistency with the objectives and the resources of the company. There are three types of diversification: concentric, horizontal, and conglomerate.

Concentric diversification
This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change. It also seems to increase its market share to launch a new product that helps the particular company to earn profit. For instance, the addition of tomato ketchup and sauce to the existing "Maggi" brand processed items of Food Specialities Ltd. is an example of technologicalrelated concentric diversification. The company could seek new products that have technological or marketing synergies with e xisting product lines appealing to a new group of customers.This also helps the company to tap that part of the market which remains untapped, and which presents an opportunity to earn profits.

Horizontal diversification
The company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain market segments. For example, a company that was making notebooks earlier may also enter the pen market with its new product.

When is Horizontal diversification desirable?
Horizontal diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity and instability. Another interpretation Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. For example, Avon's move to market jewelry through its door-to-door sales force involved marketing new products through existing channels of distribution. An alternative form of that Avon has also undertaken is

Defensive reasons may be spreading the risk of market contraction. different tests can be done:[2]   The attractiveness test: the industry that has been chosen has to be either attractive or capable of being made attractive. The conglomerate diversification has very little relationship with the firm's current business. commitment. the main reasons for adopting such a strategy are first to improve the profitability and the flexibility of the company. diversification might necessitate significant expanding of human and financial resources. clothing. or using retained cash that exceeds total expansion needs. Therefore. more efficient use of available resources and capacities). Conglomerate diversification (or lateral diversification) Main article: Conglomerate (company) The company markets new products or services that have no technological or commercial synergies with current products but that may appeal to new groups of customers. taking opportunities that promise greater profitability than expansion opportunities.g. Avon is still at the retail stage of the production process. Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required.. In order to measure the chances of success. Moreover. Therefore. the company puts itself in a great uncertainty. The first one relates to the nature of the strategic objective: Diversification may be defensive or offensive. Diversification has the highest level of risk and requires the most careful investigation. Offensive reasons may be conquering new positions.. The cost-of-entry test: the cost of entry must not capitalize all future profits. companies may also explore diversification just to get a valuable comparison between this strategy and expansion. provide increased growth and profitability.g. Though this strategy is very risky. Goal of diversification According to Calori and Harvatopoulos (1988). Risks Of the four strategies presented in the Ansoff matrix. In both cases. profitability) or first and foremost great coherence and complementary to their current activities (exploitation of know-how. or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth. . it could also. plastic products) and through retail stores (e. and second to get a better reception in capital markets as the company gets bigger. Therefore. In addition. The second dimension involves the expected outcomes of diversification: Management may expect great economic value (growth.Tiffany's). a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth. if successful.selling its products by mail order (e. which may detract focus. there are two dimensions of rationale for diversification. and sustained investments in the core industries.

increase their sales through enhanced branding. I made a significant contribution to growing Finale (Rodenticide) to the leading brand in its class. It involves the introduction of new products into existing markets. including the fmcg sector. a new waterproof cube was developed specifically for outdoors. After relevant changes were made to minimise the impact on the environment. However. The better-off test: the new unit must either gain competitive advantage from its link with the corporation or vice versa. Working closely with the company. . As marketing consultant to Agrevo (Environmental Health) overseas. and conveying these in optimal fashion. This can be achieved by improving branding and marketing efforts and promotion. Product Development can be classified as a strategy carrying a medium degree of risk. a move that proved highly effective. has played a significant role. adding emotional values. I received similar results with Cadbury Smash when a series of recipe leaflets and in. many companies attempting to diversify have led to failure. An interesting example of enhanced market penetration occurred at the onset of my marketing career with Cadbury Schweppes internationally. there are a few good examples of successful diversification:    Virgin Group moved from music production to travel and mobile phones Walt Disney moved from producing animated movies to theme parks and vacation properties Canon diversified from a camera-making company into producing an entirely new range of office equipment. resulting in a significant sales increase. Market penetration is the least risky strategy and focuses on selling existing products into existing markets to enhance market share and profitability. Both initiatives were well supported on the promotional front. marketing and communications. An issue with the product was that it was initially available only in pellet form for indoor use. Because of the high risks explained above. at which time consumers were encouraged to use Roses Lime Juice as a mixer in innovative ways. Market penetration has generally played a major role in my successful brand development activities over time. Recently in Australia I have been involved in assisting a broad range of companies. this version was launched with great success as it enabled the brand (which was a single dose kill) to position itself as the total solution for rodent demonstrations depicted how the product could be used on a far broader front. loyalty programs and in other innovative ways. In this regard.

Like product development. little. at which time far more acceptable product options were launched and some existing variants were withdrawn. Some companies. In reviewing the Ansoff matrix and examples above. Nevertheless comprehensive market research played a major role in securing the positive outcomes. but their success was further enhanced through the introduction of excellent products into new markets such as the hospitality and health sectors. SMEs should give thought to which of the strategies. In addition to the Ansoff matrix. I derived a strategy that enabled an SME OTC pharmaceutical company to diversify into niche cosmetic and other areas with significantly positive outcomes. or a combination. although the risk was mitigated through the introduction of a well experienced business partner in this sector. Market Development is a strategy whereby a business introduces existing products into new markets. I assisted the group to successfully diversify into the gardening sector. other tools and considerations should also play a role before formulating and implementing a comprehensive growth strategy. Furthermore. export initiatives proved most successful. Initially Agrevo’s environmental health range focussed on the agricultural and consumer sectors. this is also regarded as having a medium degree of risk. This involved niche marketing and additional product distribution. such as Virgin. is best for their needs. . or no experience. as outlined in a White Paper on our website. have generally diversified very successfully. Additionally. I utilised this strategy to develop markets in designated country areas through marketing initiatives undertaken across a broad front including the introduction of mobile marketing trucks that undertook sampling.As another example. but have nevertheless failed at times. A company must therefore evaluate the decision to diversify with relatively more caution. Kellogg’s utilised a product development strategy most successfully for Nutri-Grain Bars when customer tastes changed markedly in the UK. As marketing manager of Cadbury Schweppes. Diversification carries the highest risk of all four strategy options as it involves a business introducing a new product to a new market in which it has far less. as was the case with Virgin Cola. During my tenure with Agrevo as their advertising and marketing consultant.