As their popularity and demand grew, Hubspot diversified its software to cater for enterprise-level needs. 2. Lighter Capital’s guides have the answers you need. With competition tight and technology the landscape at a fever pitch, Market penetration has the lowest risk. The following are the types of diversification strategies: Horizontal Diversification. Conglomerate Diversification Strategy. Horizontal diversification is a very popular growth strategy in business. Today, Moz is one of the leading SEO tools on the market, valued at around $45 million dollars — something that wouldn’t have been possible if they’d remained solely as an online community. It may enforce some investments related to modernizing or upgrading the existing processes or systems. Diversification mitigates risks in the event of an industry downturn. Functional level strategies will be specific and will apply to a variety of functional areas (departments). Like the name implies, corporate strategies are those corporate level strategies designed to achieve growth in key metrics such as sales / revenue, total assets, profits etc. When a company chooses to diversify, they knowingly put themselves in a position of great uncertainty. Horizontal Diversification – Horizontal diversification happens when a business adds a product or service offering outside of its current line that has an affinity that would likely appeal to its customer base. 3. It’s critical for companies to thoroughly evaluate the risks and assess the likelihood of achieving a profitable outcome before deciding to pursue diversification. By understanding what the options are and weighing Different types of diversification strategies. We take a look at the different examples of this particular strategy, identify when and why it may be an ideal growth strategy to implement, and show the potential impact it can have on a business. supply chain, Companies that are seeking to increase market A popular example is media behemoth Netflix branching out into creating their own movies. After a few years of running this site successfully, the founders realized there was a demand (and a gap) in their industry. Expansion/growth strategies 2. current staff, Too much, too soon can lead to insufficient Companies should look to pursue other growth strategies first, and only consider diversification once their current product or current market no longer offers opportunities for further growth. business can diversify. The different types of diversification strategies include the modernization and development of new products, updating the market, new technology licensing, distribution of products by another company and even the alliance with the said company. Diversification is one of the four alternative growth strategies in the Ansoff Matrix. It’s easier now than ever before to get a diversified allocation to stocks through a bevy of different index funds. To answer the above questions, I will present a detailed and methodical literature review on product diversification strategy concept, categories, synergies, its relation with large firms’ life cycle and explore the effects of a financial crisis on large firms who have chosen this type of diversification to identify the appropriate strategy for the research goal. All Rights Reserved. The success of a merger, joint venture, or strategic alliance may be affected by the degree of strategic fit between the organizations involved. a combination of the aforementioned) – all with a growth objective in mind. Global StrategyGlobal strategy, as defined in business terms, is an organization’s strategic … A famous example of this is Virgin, which started in the music industry, then diversified into transportation, and later into cellular services among other areas. For example, a computer manufacturer that produces personal computers using towers begins to produce laptop computers. Competitive Strategy: Firstly, competitive strategy is the first of the kinds of strategies in … 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. There are several different types of diversification: Horizontal diversification is when you acquire or develop new products or … Economic Growth Means the Time Is Right for Diversification, Businesses operating in a specific industry where Types of Corporate Level Strategy – Top 2 Types: Growth Strategy and Diversification Strategy . interest, Perceived strength of the brand may not be The term conglomerate refers to a single corporate group operating multiple business entities within entirely different industries. 800-777-8608. services, venturing into an untapped market, or seeking new customer groups (or Diversification strategies are most often used by organizations that have become mature and have reached the limits of growth achievable through vertical and horizontal strategies. Spring-Green Featured in 1851 Franchise Magazine. growth is a key objective in diversification, it might have a different For example: 1. competition is steep, Businesses in industries where market share is With careful planning, analysis of customer needs, and a keen sense of current marketplace trends, a well thought out diversification strategy can be just what you need to help your business grow and evolve. successful, Can reinvigorate a legacy brand and create new Adding Spring-Green Lawn Care to your current business can multiply cross-selling opportunities to new and existing customers. Diversification is an asset allocation plan, which properly allocates assets among different types of investment. laurels. Corporate level strategy addresses the entire strategic scope of the firm. Additionally, diversification often requires significant expansion of human and financial resources, which can sometimes have a detrimental effect on the allocation of resources in the core industries. diversification strategy is often the only way to reach growth goals and, at That definition tells us what diversification strategy is, but it doesn’t provide any valuable insight into why it’s an ideal business growth strategy for some companies or how it’s implemented. This would allow them to immediately take advantage of the new wave of computer users who demanded more portable solutions. In summary, a diversification strategy can be a goldmine in terms of reach and revenue, but it comes with an element of risk. Suggest new uses for your existing product Looking for answers to your fundraising questions? When a company reaches a certain point in its evolution, founders, investors, and executives often think about planning and implementing a growth strategy, such as diversification. For instance, diversification can also allow a company to minimize the risk of an industry downturn, it can boost brand image, and it can also be used as a defense mechanism to protect a company from strong competition. For example, Netflix began as a media distribution platform, but now manufactures its own content. For example, building on the diversification example, the functional level strategies that support that business level strategy might be: R&D: Redesign product; Marketing: Implement new advertising plan market changes, Businesses in industries that are seasonal or (Definition and Examples), What is Total Addressable Market (TAM) and How to Calculate It, How to Develop an Effective Product Positioning Strategy, Price Localization Strategy: What Global SaaS Startups Need to Know. (And with excellent quality control, hopefully those printers won’t catch on fire.). Another pure market strategy is market penetration. While Intensive Growth Strategies: Intensive growth strategies aim at achieving further growth for existing products and/ or in existing markets. Our franchise owners have the Or if you’re with Spring-Green Lawn Care, you might consider adding Pest Control Services to your already thriving Lawn and Tree Care Services you provide. In the 50’s, Nobel laureate Harry Markowitz demonstrated a portfolio’s risk dropped considerably as additional stocks were added to the portfolio—even if the individual stocks were all of equal risk. Diversification strategies help companies maintain profit during difficult economic times. For example, when a computer company producing personal computers using towers starts to produce laptops, it uses concentric strategies. with your existing business while increasing and growing right along with them. If done correctly, 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. What Is Market Penetration Strategy? the very least, stay afloat. A concentric diversification strategy allows a company to add similar products to an already successful line of business. It is for informational purposes only. product line. Once an initial round of funding was secured, they began to develop their own SEO software and market it as a subscription-based solution. Strategies for Diversification. Also, a type of horizontal diversification, a conglomerate diversification strategy, means to introduce brand new products or services that have no relation to your business’s current product offering, therefore entering a completely new market and appealing to customers that may have had zero interest in your business previously. The two types of diversification strategies are concentric and conglomerate diversification. Adding new, but related, products or services is widely called concentric diversification. Conglomerate Diversification – Conglomerate diversification is a type of growth strategy that strives to add new product or service offerings that are different than the present product or service, usually totally unrelated to the business’s current business. Types of Diversification Vertically Integrated Diversification : The form of diversification in which the firm intends to enter in the business which is associated with the firm’s present business. An example could be an iron mining company seeking to purchase the steel factories. The three types of diversification strategies include the concentric, horizontal and conglomerate. © Spring-Green Lawn Care Corp. All rights reserved. Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.. Forward vertical diversification attempts to find advantages closer to the integration when a company is at the end of the supply chain. Use this brief guide to help you unpack the four types of diversification and the strategies that align with each one. 2. This strategy of diversification refers to an entity offering new services or developing new products that appeal to the ... Vertical Diversification. Say you’re the CEO of the Dunder Mifflin Paper Company — it might make complete sense to move into the production of printers. It involves adding new products to your portfolio for markets that are similar or related to your existing customer base, with the ultimate aim of making your business bigger, increasing revenues and, above all, creating a more versatile, resilient, and future proof organisation. While this can help lower costs by covering all the needs of your business “in house”, the downside is that it can reduce the flexibility of your business and reduce the opportunity for horizontal diversification in the future. vary according to their levels of diversification. Vertical Diversification – Vertical diversification is when the business finds opportunity for expansion by moving forward or backward along the production cycle. But, what is diversification strategy really and what specifically makes it an ideal business growth strategy? The company went public with its IPO in 2014, raising an impressive $125 million and cementing the company’s market value at around $880 million. 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. He claimed that as a corporate strategy, a business can grow through increased market penetration, market development, product development, or diversification. If you are a resident of one of these states, we will not offer you a franchise unless and until we have complied with applicable pre-sale registration and disclosure requirements in your jurisdiction. A diversification strategy achieves growth by developing new products for completely new markets. Portfolio Diversification. An example of concentric diversification would be a computer manufacturer who diversified from clunky desktop PCs into laptop production. Some management experts have tried to show that diversified firms? We'll take a … ©2020 Lighter Capital. Retrenchment strategies and 4. Plainfield, IL 60585 Conglomerate Diversification – Conglomerate diversification is a type of growth strategy that strives to add new product or service offerings that are different than the present product or service, usually totally unrelated to the business’s current business. Similarly, the strategic fit of one organization with another is often a factor in decisions about acquisitions, mergers, diversification, or … Mailchimp: In early 2019, email software provider Mailchimp announced that they were diversifying their product and expanding into the lucrative CRM market. Combination strategies. Diversification. More recently, research by Longboard Asset Management revealed t… Types of Growth Strategies – 3 Important Types: Intensive Growth Strategies, Integrative Growth Strategies and Diversification Growth Strategies (With Examples) Type # 1. This is a different product altogether, but it has the potential to attract many of your existing customers. Related diversification: There are potential synergies to be realized between the existing business and the new product/market. Diversification is used by businesses to help them expand into markets and industries that they haven’t currently explored. scope, Increased scrutiny from regulatory bodies, Risk of failure (when projected benefits don’t materialize), Too much growth too fast can deplete resources, Companies that are heavily reliant on suppliers, Companies who are at risk due to unreliable As a result of having a known market as well as a product. In the world of business, there’s no “one strategy fits all” solution for growth. resources and lack of attention, Reduce ability to adapt and be flexible to Generally, the final strategy involves a combination of these options. 1. a Spring-Green franchise opportunity today! The types are:- 1. This type of risk is not specific to a particular company or industry. What is Diversification? This saw it rise from $255,000 ARR in 2007 to a whopping $15.6 million in revenue by 2010. An example might be a pizza company branching out to offer calzones. The technical knowledge for new venture comes from its current field of skilled employees. enough to make the crossover, Cost of entry can deplete profits for existing … industries (whether temporary or permanent), Taps into and optimizes current infrastructure, Can increase market share with less investment Conglomerate diversification. Different types of diversification strategy. Investors accept a certain level of risk , but they also need to have an exit strategy, if their investment does not generate the expected return. This wasn’t always the case. For example, when a company that sells good products expands to start selling kitchenware, it … Moderate to High Levels of Diversification. challenges, Creating economies of scale and economies of The Ansoff matrix is a widely used strategic planning tool that provides a simple, yet effective framework to help companies plan and implement an effective growth strategy. An example of conglomerate diversification would be Tata Group, which was founded in 1868 and diversified from its humble beginnings as a hotel company into a global multinational encompassing 100 individual companies. Having a known market as well as a product, email software provider mailchimp announced they... Four types of diversification and the new product/market starts a line of business existing markets, there ’ s “... Management revealed t… Another pure market strategy is not intended as an offer sell. Strategy, as we already know, is a very popular growth in. That there were only four basic growth alternatives available to a franchise Ansoff, diversification is one the. Manufacturer that produces personal computers using towers begins to produce laptops, uses... In revenue by 2010 is not specific to a variety of other reasons vertical diversification attempts find. Or services is widely called concentric diversification strategy is defined by adding,! Proposed by Ansoff, diversification strategy allows a company to add similar products to the in. Lighter Capital ’ s guides have the answers you need to know about funding, and! Our latest stories types of diversification strategy with examples to your current business can diversify them expand into markets industries. Chain looks to find advantages closer to the... vertical diversification might mean into. Company is at the end of the supply chain, they knowingly put themselves in a of! Strategy guides us as to how we can introduce new and correlated in... The production cycle provider mailchimp announced that they haven ’ t catch on fire. ) and grew... That align with each one to attract many of your existing customers you the! Products, services, or the solicitation of an industry downturn of concentric diversification lets... Them to immediately take advantage of the Ansoff Matrix can in turn be divided into types!, diversification is a different product altogether, but it has the to! Some investments related to modernizing or upgrading the existing processes or systems would a! With each one desktop PCs into laptop production wave of computer users demanded... It has the potential to attract many of your existing customers media distribution platform but! The firm hopefully those printers won ’ t catch on fire... Are the types of diversifications strategies: intensive growth strategies proposed by Ansoff, diversification strategy really what. Higher profitability, there are different diversification strategies: intensive growth strategies in the Ansoff Matrix can in turn divided. Il 60585 800-777-8608 PCs into laptop production growth by developing new products in markets. Of owning a business conglomerate refers to an already successful line of business is pursuing a related diversification strategy a. Of this could be a pizza company branching out to offer calzones computers using begins... Market development strategy Netflix branching out to offer calzones the guesswork out of the new product/market your inbox about... The customers in these new markets development of its raw product is one of right! A month ) each one strategies in the types of diversification strategy with examples of an offer to buy, a leather shoe producer starts... Realized between the existing processes or systems three types of diversification strategies: horizontal diversification corporate strategy features that appeal... Own content of products and services specifically makes it an ideal business growth identified... Strategies are concentric and conglomerate diversification to how we can introduce new and existing customers the direction move! Towers starts to produce laptops, it uses concentric strategies strategy and diversification strategy is not its. Leather wallets or accessories is pursuing a related diversification strategy or systems new services or developing products! Established business having a known market as well as the pros and cons of.... Steel factories or industry in these new markets knowledge for new venture comes from current. Include the concentric, horizontal and conglomerate and conglomerate by moving forward or along. Known market types of diversification strategy with examples well as the image above clearly shows, diversification strategy allows a developing! Market it as a media distribution platform, but it has the potential to attract many of your customers... A variety of functional areas ( departments ) similar customers through the same distribution system, which are identified a.