DIVERSIFICATION

STRATEGIC
MANAGEMENT
The Ansoff Matrix

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WHAT IS
DIVERSIFICATION?

Diversification strategy is defined by

adding new products in new markets
 Companies diversify to achieve greater
profitability.
 Expand into markets and industries that they
haven’t currently explored.
 To minimize the risk of an industry
downturn.
 Boost brand image.
 defense mechanism

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TYPES OF
DIVERSIFICATION
STRATEGIES

RELATED AND UNRELATED

 Related diversification, companies have a strategic
fit with the new venture.
 To make this strategy work, you capitalize on the
strengths or competitive advantage you’ve already
established.
 E.g.- Virgin Group
 Unrelated diversification has nothing to do with
leveraging the current business strengths or
weaknesses.
 Like an IT Firm buying a local restaurant to save it
from going bankrupt.
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TYPES OF
DIVERSIFICATION
 Horizontal diversification refers to an
entity offering new services or developing
new products that appeal to the firm’s
current customer base.
 For example, a dairy company producing
cheese adds a new variety of cheese to its
product line.
 Concentric diversification involves
adding similar products or services to the
existing business.
 For example, when a computer company
that primarily produces computers starts
manufacturing laptops, it is pursuing a
concentric diversification strategy
 Vertical diversification takes place when
a company goes back to a previous or next
stage of its production cycle.
 For example, a company involved in the
reconstruction of houses starts selling
construction materials and paints. It may
be forward integration or backward
integration.
 Under conglomerate diversification, an
entity launches new products or services
that have no relation to the current
products or distribution channels.
 A firm may adopt this strategy to appeal to
an all-new group of customers. The high
growth scope and return on an investment
in a new market segment may prompt a
company to take this option.
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