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

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

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

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