The COVID-19 crisis put the operation of many businesses in check, especially those that had not started or consolidated their digital transformation process .
In fact, after analyzing more than 120,000 companies in more than 60 countries, the World Bank concluded that sales fell by an average of 27% between October 2020 and January 2021. In this context, diversification strategies are crucial to ensure the economic sustainability of companies in the short and medium term.
Even if your company was not affected by the pandemic, at some point you will have to implement a growth strategy to go beyond the boundaries of your core segment and venture into new market niches .
If you’ve come this far, it’s because you’re interested in knowing what market diversification is, right? In this article, we’ll explain the 4 diversification strategies that will promote business growth, their advantages, risks, and the role of Marketing in their planning. Without further ado, let’s get started!
What is business or market diversification?
Business diversification, also known as market germany phone number list diversification, is a strategy that seeks to expand a company’s potential market by creating new products or services to expand into new markets .
Diversification is one of the four main growth strategies of the Ansoff matrix , which consists of developing products or services to meet new consumer profiles.
In simple terms, it is about not putting all your eggs in one basket in order to minimize risk and increase business revenue.
In a VUCA environment – volatile, uncertain, complex and ambiguous – deepened by the health crisis, companies are just taking the first steps in productive and financial recovery from the “pandemic wounds”.
This is where diversification strategies facilitate this recovery, as they help companies keep up with new market conditions. We are talking about reinventing yourself or disappearing!
Depending on your business objective, you can choose one of the 4 types of business diversification that exist. Below, we explain them in detail.
1. Related or horizontal diversification strategy
The easiest way to penetrate new markets is through related or horizontal diversification. This occurs when a company launches a product or service linked to its main activity.
The particularity of this strategy is that there must be some compatibility between the new and old products . For example, it is common to use the same resources, distribution channels , technologies, machinery, processes or knowledge to take advantage of synergies between the different products.
A success story is PepsiCo . In 1931 they launched Pepsi, the iconic rival of Coca Cola. However, in 1965 they began a horizontal diversification strategy when the company acquired Frito-Lay. With this move, PepsiCo added to its catalogue different packaged snacks that complement the consumption of the soft drink.
2. Unrelated or conglomerate diversification strategy
Unrelated or conglomerate diversification is the content well develop? is a more aggressive way to enter new markets, since the company’s new activities have no relationship with the current business model .
This strategy aims to exploit profitable opportunities in very different market segments .
Of course, the search for greater profitability implies greater risk . Companies must enter markets that they do not know and for which they do not have perfectly developed structures, knowledge or technologies.
Sony is the perfect example of conglomerate diversification strategies. The Japanese company started as an electronics company and is currently one of the major players in the entertainment industry with subsidiaries Sony Pictures, Sony Music and Sony Interactive Entertainment.
3. Vertical diversification strategy
Vertical diversification strategies occur changsha mobile phone number list when a company starts manufacturing products or developing services that it previously acquired from third parties. This can be done in two ways:
- Backward integration , which occurs when a company acquires or partners with another company to cover the previous stages in the production chain. Here, the company becomes its own supplier.
- Forward integration , which occurs when the company manages the phases of the production process closest to the customer, such as the marketing, logistics or distribution stages.
For example, Apple has diversified vertically to produce the iPhone. In addition to developing its own software, iOS, it is also responsible for designing, producing, and marketing smartphones.
4. Concentric diversification strategy
Finally, a company carries out concentric diversification when it integrates new products or services into an existing line .
As part of its concentric diversification strategy, Coca Cola has launched different versions of the classic drink, for example, Coca Cola Light, Coca Cola Zero or Coca Cola Café.
The 5 roles of Marketing in diversification strategies
The goal of diversification strategies is to encourage business growth , but how is this achieved? It all boils down to adding more product lines to the core business in order to:
- open markets;
- attract new customer segments.
These two actions fall directly on the marketing department. Without the market research process carried out by this team, it would be impossible to develop products that meet the needs of consumers.
With this in mind, we will now explain the role that marketing professionals play within business diversification strategies.
1. Identification of business opportunities
The marketing department is one of the departments that knows the end customer of companies best. Not in vain, they spend hours researching who their buyer persona is , what their difficulties are and how the company can best solve them.
Therefore, together with Business Intelligence teams , it is the responsibility of marketers to identify growth opportunities in accordance with new customer demands, market changes or new industry trends.
2. Competitor analysis
This study allows you to find the successes and failures in your competitors’ actions. You can start by building a SWOT matrix to determine more strategic issues and then use competitor analysis tools to find detailed information that will guide the construction of your diversification strategy.
Take advantage of them! Study your competitors’ value proposition , their pricing structure , points of sale, tone and style of communication, customer service , etc.