product diversification examples

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Low Levels of Diversification. In an attempt to expand their market size and invigorate their brand, many firms take a shot at diversifying their brand. The new product that is manufactured by the company must match the ethical and governance standards of the parent product. A company that is widely diversified will not be in a position to respond quickly to various market changes. For example company was making note books earlier and now they are also entering into pen market through its new product. The risk of implementation is also involved, such as structure, talent, leadership, processes, and systems that may not prove to be adequate. Product diversification relationships, embracing both innovation and performance, were examined in a structural equation model, where the BSC is treated as an endogenous variable. But as risky as it can be, it may also be a great way to maintain a measure of stability. Similarly, Walt Disney company diversified its business from being an animation industry to an amusement park film production and television industry. Conglomerate diversification (or lateral diversification) The company markets new products or services that have no technological or commercial similarities with current products, but which may appeal to new groups of customers. To make profitable and fruitful use of marketing opportunities. Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital, and finance, etc. There are two types of diversification a firm can employ: 1. A great example of a conglomerate is Samsung, which is operating in businesses varying from computors, phones and refrigerators to chemicals, insurances and hotel chains. Conglomerate diversification (or unrelated diversifcation) on the other hand is about entering a new market with a new product that is completely unrelated to a company’s existing offering. Product diversification is a business strategy which involves producing and selling a new line of products or product division, service or service division which involve either same or entirely different sets of knowledge, skills, machinery, etc. Both are effective growth strategies, but they also bring some risk. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. When the business spreads across multiple market segments, it lowers the risk of business failure. Objectives of Product Diversification: According to Prof. Andrews, the different objectives of product diversification are: 1. Horizontal diversification allow a firm to start exploring other zones in terms of product … ‘Brand diversification’ commonly refers to a process of launching a new product in a new market, as seen in Ansoff’s Growth Matrix; examples of such strategy are the McCafe, Nike’s golfing collection, IBM’s business intelligence & analytics, and UberEATS. This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business. Renaming. Illustration: Google and its Products Search is still Google’s best product and since 1997 Google is market leader and dominant in the industry. That is a prime example of what product diversification can do. Thereby maximizing the sales of the product and serving the consumer needs from a firm. A business is defined as a division, product line, or other profit center within its parent … Conglomerate diversification (or lateral diversification) The company markets new products or services that have no technological or commercial similarities with current products, but which may appeal to new groups of customers. An existing product could be renamed, perhaps along with somewhat different packaging, and sold in a different country. The Business Dictionary definition of diversification highlights common reasons companies diversify markets. Both are the market strategies that organizations use to expand their businesses, although they have different meanings. Product diversification versus focusing on one product are the major strategies in which firms decide and engage for increasing profitability, market value, revenue or both of them. Examples of Business Diversification. It creates competition in the market and further helps in surviving this competition with ease. There are a number of ways to engage in product diversification, including the following: Repackaging. vary according to their levels of diversification. New skillsets will be demanded; the diversification and lack of this expertise will prove a setback for the company. The manner in which a product is presented can be altered to make it available to a different audience. Product diversification helps in maximizing the utilization of available resources. This has been a guide to What is Product Diversification & its Meaning. - Growth Strategy: Product diversification helps the business to capture other markets and even up-sell their products. If the market undergoes the process of saturation, product diversification helps in undergoing and reducing the. According to them, three levels of diversification exist; 1. Full Diversification - this approach is the most risky as you are offering a totally new product or service to an unknown market. usually undertaken with the motive of ensuring survival or growth and expansion. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy. The asset base of a company is determined by the amount of sales made in a particular period of time. In this case there is no direct connection with the company´s existing business - this diversification is classified as unrelated. Product diversification has been found to make companies make lower levels of profits. An example of this strategy would be: A fresh trout distributor decides to diversify into selling insurance. Therefore, in this type of growth strategy, the firm only focuses on the introduction of new products. A product could be repackaged into a different size or standard selling quantity. This is almost always done through brand extensions or new brands, but in some cases the product modification may "create" a new market by creating new uses for the product. Related Corporate Diversification - related constrained or related linked?Unilever is definitely the king of product diversification with over 30 brands being sold in more than 190 countries. For example, a car company decides to build a sports car that is positioned at the top end of its product line. For example, an ice-cream business adds a new type of confectionary into its product line. To maximize the profit of the firm by offering and producing different types of products to the market and helps in searching for the new opportunity in the market. The data in this article are from a sample of corporate ventures launched in the United States by the top 200 companies in the Fortune “500” and a sample of established businesses in the PIMS project.1A corporate venture is defined as a business marketing a product or service that the parent company has not previously marketed and that requires the parent company to obtain new equipment or new people or new knowledge. Product diversification can be expensive, especially when launching it broadly in a new market. Firm resources and sustained competitive advantage and Hitt’s paper International diversification: Effects on innovation and firm performance in product-diversified firms and La Palepu’s paper Diversification strategy, profit performance and the entropy measure (See Table 3). 2. The Secret Ingredient behind the success to Google was being more relevant by indexing. The intent is to remain true to the original purpose of the product, but to adjust it to match the local culture. 2. Product Diversification Techniques. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. For example, a company entering new markets with existing products makes more productive use of its sales, marketing and manufacturing resources. Diversification can be expanding into a new segment of an industry that the business is already in, or investing in a promising business outside of the scope of the existing business. For example, manufacture and sale of sewing machines in addition to electric fans pro­duced by a firm is a case of product diversification. Related diversification: There are potential synergies to be realized between the existing business and the new product/market. Brand extensions. Product extensions. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. Product diversification can occur at various business levels or at the corporate level. Product diversification gives also other challenges to managers such as the need of new skills to manage a wider group of businesses, new techniques, sometimes new facilities, large capital to test the viability of the new product, produce it and market the product, hire and train new employees, etc. Old and new sectors of the entity will suffer due to a lack of attention and insufficient sources. In product diversification, managing and additional product development is a major challenge. Diversification is about building new products, exploring new markets, and taking new risks. Product Development Improving an existing product or developing new kinds of products is called Product Development. The focus on the operation of the company and its innovations will be limited. The product diversification strategy is different from product development in that it involves creating a new customer base, which by definition expands the market potential of the original product. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. Market diversification is often done to challenge a competitor and to find additional sources of income. Canon diversified from a camera-making company into producing an entirely new range of office equipment. For example, a product normally sold as a single unit could be packaged into a quantity of ten and then sold through a warehouse store. Diversification occurs when a business develops a new product or expands into a new market. For example, if the shoe producer enters the business of clothing manufacturing. The manner in which a product is presented can be altered to make it available to a different audience. Product diversification gives also other challenges to managers such as the need of new skills to manage a wider group of businesses, new techniques, sometimes new facilities, large capital to test the viability of the new product, produce it and market the product, hire and train new employees, etc. Consequently it can make sense to launch in several test markets to determine customer acceptance before rolling out a new concept more broadly. For example, If you’re a retailer, vertical diversification might mean moving into manufacturing the products you currently sell. The price of a product can be adjusted, along with other improvements, to reposition it for sale through a new distribution channel. Limited investment in a particular segment will make the diversified entity lose out the growth opportunity, thus reducing profit maximization. Horizontal Diversification. The challenges involved in market diversification are research and planning, advertising, marketing, and activities needed to sell a product to a new segment. A business diversifies by offering assorted goods and services, participating in new industries, or finding multiple uses for its products. Product line extension is another form of diversification that aim at reaching those market segments which the firm has not yet penetrated. Moderate to High Levels of Diversification. Pure product strategy is about product development. Moderate to High Levels of Diversification. As with concentric diversification, the new products will be closely related to existing products. TATA Group initially ventured into the steel manufacturing business and diversified it into other segments such as hospitality, aviation, automobile, power, etc. 3. 1%. An industry analyst explains: This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, New Year Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. Here's a recap of Unilever brands by category:Home care - Omo, Persil, Surf, Comfort, Cif, and… The primary consideration is to sell more products by introducing new products to the market. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. It may be possible to sell several versions of the same product, perhaps by adding additional features or by offering the product in different colors. To meet the demand of diversified retailers and curtail market expenditure. Product diversification means adding new products or services to expand the business offering within existing markets. To make stability in the earning and growth of an organization. There are a number of ways to engage in product diversification, including the following: Repackaging. Product Diversification Example. You can learn more about from the following articles –, Copyright © 2021. Diversification also requires additional management and operational resources. This strategy is used to increase the sales associated with an existing product line, which is especially useful for a business that has been experiencing stagnant or declining sales. Apple moved from PCs to mobile devices. It is also sometimes called product differentiation. Concentric diversification, a strategy used to increase company appeal to consumers, can also involve opening new markets by creating product variation. Here we discuss its objectives, features, and risk along with examples, advantages, and disadvantages. For example, a watch movement could be inserted into a platinum casing and sold through jewelry stores, rather than its original positioning as a sport watch. Virgin Group moved from music production to travel and mobile phones. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. For example, a smart phone may be offered in several colors. It helps in multiple investments, which helps in absorbing losses incurred by any other investment. Thus with diversification the income flow is assured during various seasons. Some examples of concentric diversification include resource sharing, strategic partnerships and acquisitions. However, there is a paradox about which strategy is the best one for firms in realizing the ends. Market Diversification Benefits. It can expand the audience for a particular brand, and it can improve the overall bottom line of … 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. It involves decision risk that involves the choice of the product and market for the product to go wrong. You may require new technology, skills or marketing approach to diversify in this way. It is a part of product line decisions and may occur either at a horizontal or vertical level of business. Diversification is a corporate strategy to increase sales volume from new products and new markets. It will also take considerable time to accomplish. A successful diversification can make better use of a company’s existing resources. 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