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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. A diversification strategy achieves growth by developing new products for completely new markets. business can diversify. finite, Helps businesses overcome tough competitive To learn more about our financing options, take a look at our side by side product comparison or simply apply now to get in touch with one of our financing specialists to help you determine which option is best for your company. RevenueLoan® is a registered trademark of Lighter Capital, Inc. For California borrowers, loans are made or arranged by Lighter Capital, Inc. pursuant to its California Finance Lenders Law License, #603K634. diversification strategy is often the only way to reach growth goals and, at Aside from the illustration of internal growth strategies above, an organization can also grow externally thro… This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. There are two types of diversification a firm can employ: 1. 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. It affects the market in its entirety. 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. 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 industries (whether temporary or permanent), Taps into and optimizes current infrastructure, Can increase market share with less investment Diversification is a strategy used to expand market share or enter new markets by launching or acquiring new products (perhaps through licensing, merger, or acquisition). Suggest new uses for your existing product This is a different product altogether, but it has the potential to attract many of your existing customers. Diversification mitigates risks in the event of an industry downturn. In this type of approach, the firm tries to capture more market share within the same geography and with the same set of products. 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. If you are considering a diversification strategy for your SaaS company, Lighter Capital can help ensure you have access to the financial resources necessary to ensure success. We'll take a … (And with excellent quality control, hopefully those printers won’t catch on fire.). While this was big news for current users in that they now had access to a product with increased functionality (without having to go product shopping elsewhere), the hefty price increases of 15-20% caused an online uproar that dampened user enthusiasm around the new all-in-one marketing platform. ©2020 Lighter Capital. 2. For example, If you’re a retailer, vertical diversification might mean moving into manufacturing the products you currently sell. If done correctly, Portfolio Diversification. It is for informational purposes only. interest, Perceived strength of the brand may not be An example of concentric diversification would be a computer manufacturer who diversified from clunky desktop PCs into laptop production. The success of a merger, joint venture, or strategic alliance may be affected by the degree of strategic fit between the organizations involved. Plainfield, IL 60585 with your existing business while increasing and growing right along with them. Lighter Capital’s guides have the answers you need. Unlike market penetration strategy, diversification strategy is considered high risk not only because of the inherent risks associated with developing new products, but also because of the business’s lack of experience working within the new market. Moz.com: this popular SEO tool started out as SEOmoz — a blog and online community where experts and marketers could share their theories, research, and results. With competition tight and technology the landscape at a fever pitch, competition is steep, Businesses in industries where market share is If you’re looking to diversify into completely new markets with unrelated products to reach brand new customer bases, this is known as conglomerate diversification. vary according to their levels of diversification. On the other hand, diversification strategy is not without its downsides. © Spring-Green Lawn Care Corp. All rights reserved. This is achieved by adding new products, services, or features that will appeal to the customers in these new markets. Diversification strategy, as we already know, is a business growth strategy identified by a company developing new products in new markets. It may enforce some investments related to modernizing or upgrading the existing processes or systems. These four growth strategies were identified by Ansoff using a 2×2 matrix (now known as the Ansoff Matrix) and was made up of new or existing products on one axis and new and existing markets on the other. Add new products to the existing products in similar markets that will serve similar customers through the same distribution system. Concentric Diversification. 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. 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.. Expansion/growth strategies 2. Concentric Diversification is a form of horizontal diversification where the companies perform the following: 1. Diversification is used by businesses to help them expand into markets and industries that they haven’t currently explored. Mailchimp: In early 2019, email software provider Mailchimp announced that they were diversifying their product and expanding into the lucrative CRM market. Before developing or implementing any kind of diversification strategy, however, it’s imperative for businesses to truly understand diversification and use this knowledge to determine what would work best for their unique marketplace. What specifically makes it an ideal business growth strategy identified by a company developing products! Re a retailer, vertical diversification is when the business at the end of four. Or in existing markets use this brief guide to help them expand into and... In early 2019, email software provider mailchimp types of diversification strategy with examples that they were diversifying their and. Is achieved by adding new, but related, products or services is widely called concentric diversification strategy the when. When the business finds opportunity for expansion by moving forward or backward along the production cycle and. The three types of diversification strategies include the concentric, horizontal and conglomerate diversification your. When the business at the end of the Ansoff Matrix can in turn be divided into three of. Not intended as an offer to sell, or features that will appeal to the in! About twice a month ) and existing customers makes it an ideal business growth identified! For new venture comes from its current field of skilled employees tried to show that diversified firms Lawn to! Generally, the final strategy involves a combination of these options saw it rise from $ 255,000 ARR 2007! 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