Why company diversified

Advantages and disadvantages of diversification There are pros and cons to each of the different diversification strategies. A successful diversification can help you: increase sales and revenue grow market share find new revenue streams achieve higher margins compared to existing products limit the impact of changes in the market On the other hand, diversification will incur development, sales and marketing costs.

For example: diverting funds and resources into diversification may limit potential growth in core areas of your business lack of knowledge or expertise in the new industry or markets may lead to costly delays or mistakes diversifying too quickly may cause you to lose track or dilute your core products or services if you stretch your resources too widely, you may struggle to provide a consistent level of service, which can lead to dissatisfaction and customer losses In general, diversifying with similar products or services and selling them to a familiar customer base is less risky than some other business growth strategies , such as creating a product for a completely new market.

Printer-friendly version. Diversification strategy. Invest NI's business growth tutorial. Also on this site. Understand your customers' needs. Increase your market share. Strategic planning for business growth. This would allow them to immediately take advantage of the new wave of computer users who demanded more portable solutions.

The term conglomerate refers to a single corporate group operating multiple business entities within entirely different industries. 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. An example of conglomerate diversification would be Tata Group , which was founded in and diversified from its humble beginnings as a hotel company into a global multinational encompassing individual companies.

It now employs , people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and consumables. Vertical diversification is also known as vertical integration, and occurs when a company moves up or down the supply chain by combining two or more stages of production normally operated by separate companies.

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. There are two forms of vertical diversification, which are identified by the direction you move in the supply chain.

An example of this could be a mining company that decides it wants to expand into processing and development of its raw product. For example, Netflix began as a media distribution platform, but now manufactures its own content. After a few years of running this site successfully, the founders realized there was a demand and a gap in their industry.

Once an initial round of funding was secured, they began to develop their own SEO software and market it as a subscription-based solution. HubSpot : inbound marketing giant HubSpot began as a software solution targeting small businesses with employees who needed a more streamlined way to manage their content and customers. As their popularity and demand grew, Hubspot diversified its software to cater for enterprise-level needs.

When diversifying your products , you are bound to do good research and development which results in introducing more variety and options of products in hand to capture the new market. With more product variety, you capture more customer attention and your brand receives a tremendous boost as well as the profitability of the company rises.

Thus having more products is good for your business. Your reach increases when you have more products and you need more markets to sell them. New products plus new markets is what defines the diversification strategy. More markets means your distribution increases and overall turnover increases.

Although penetrating the markets involve a lot of cost and expenditure, once penetrated, the new market will bring regular profits, which is the goal of any business oriented company.

Thus, the diversification strategy is a good market penetration strategy as well. This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business. An example of horizontal diversification is the when company A, which makes laundry detergent, seeks to enter the market for selling washing machines.

Brand recognition and customer loyalty for the detergent may carry over to the business of selling washing machines. Conglomerate diversification involves launching a new product or product lines that are unrelated to existing products, resources, or core competencies.

The company will generally attempt to leverage any brand recognition or customer loyalty in the new market. An example would be Company A, which sells electronics, venture into selling clothing apparel.

Written by Jason Gordon Updated at September 28th, Contact Us If you still have questions or prefer to get help directly from an agent, please submit a request.