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product diversification examples

An example of this strategy would be: A fresh trout distributor decides to diversify into selling insurance. Optimum utilization of production and market facilities is offered. 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. Concentric diversification, a strategy used to increase company appeal to consumers, can also involve opening new markets by creating product variation. 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. When the business spreads across multiple market segments, it lowers the risk of business failure. Diversification is a corporate strategy to increase sales volume from new products and new markets. A product could be repackaged into a different size or standard selling quantity. The focus on the operation of the company and its innovations will be limited. The Business Dictionary definition of diversification highlights common reasons companies diversify markets. For example company was making note books earlier and now they are also entering into pen market through its new product. TATA Group initially ventured into the steel manufacturing business and diversified it into other segments such as hospitality, aviation, automobile, power, etc. 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. The manner in which a product is presented can be altered to make it available to a different audience. For example, if the shoe producer enters the business of clothing manufacturing. A business is defined as a division, product line, or other profit center within its parent … It is a strategy implied by an organization to expand into a new segment in which the company is already operating at a business level, whereas, at the corporate level, it refers to venturing out into a new segment that is beyond the scope of the organization existing products. Market diversification means extending of business offering to a new market that has not been previously targeted, whereas product diversification is the addition of new services and products to an existing business for its expansion within existing markets. Product diversification helps in maximizing the utilization of available resources. Product diversification can occur at various business levels or at the corporate level. Walt Disney moved from producing animated movies to theme parks and vacation properties. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. The company's brand categories include: home care, personal care, foods and refreshments. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital, and finance, etc. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. Moderate to High Levels of Diversification. Market Diversification Benefits. Similarly, Walt Disney company diversified its business from being an animation industry to an amusement park film production and television industry. The manner in which a product is presented can be altered to make it available to a different audience. There are a number of ways to engage in product diversification, including the following: Repackaging. Thus with diversification the income flow is assured during various seasons. Horizontal Diversification. Examples of Business Diversification. Product Diversification Example. The asset base of a company is determined by the amount of sales made in a particular period of time. It involves decision risk that involves the choice of the product and market for the product to go wrong. Moderate to High Levels of Diversification. Product diversification has been found to make companies make lower levels of profits. It is also sometimes called product differentiation. 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. It may be possible to extend an existing brand at the low or high end, or fill in a hole somewhere in the middle of the product line. Diversification into various industries or product lines helps in creating stability for the company during economic changing scenarios. New skillsets will be demanded; the diversification and lack of this expertise will prove a setback for the company. But as risky as it can be, it may also be a great way to maintain a measure of stability. The new product that is manufactured by the company must match the ethical and governance standards of the parent product. For example, an ice-cream business adds a new type of confectionary into its product line. 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. 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. Canon diversified from a camera-making company into producing an entirely new range of office equipment. To meet the demand of diversified retailers and curtail market expenditure. You can learn more about from the following articles –, Copyright © 2021. To make stability in the earning and growth of an organization. Both are effective growth strategies, but they also bring some risk. Related diversification: There are potential synergies to be realized between the existing business and the new product/market. There are two types of diversification a firm can employ: 1. Product Diversification Techniques. For example company was making note books earlier and now they are also entering into pen market through its new product. 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. Diversification occurs when a business develops a new product or expands into a new market. TABLE 3HIGHLY CITED DOCUMENTS: 2000-2009 Total Citations Full Citation Index For Document Combined Strategies – Diversification; Product development. Product diversification means adding new products or services to expand the business offering within existing markets. Diversification also requires additional management and operational resources. That is a prime example of what product diversification can do. For example, a company entering new markets with existing products makes more productive use of its sales, marketing and manufacturing resources. You may require new technology, skills or marketing approach to diversify in this way. Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix. 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). This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business. The challenges involved in market diversification are research and planning, advertising, marketing, and activities needed to sell a product to a new segment. 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. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. Here's a recap of Unilever brands by category:Home care - Omo, Persil, Surf, Comfort, Cif, and… 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. It helps in multiple investments, which helps in absorbing losses incurred by any other investment. Product line extension is another form of diversification that aim at reaching those market segments which the firm has not yet penetrated. In product diversification, managing and additional product development is a major challenge. It will also take considerable time to accomplish. The intent is to remain true to the original purpose of the product, but to adjust it to match the local culture. Here we discuss its objectives, features, and risk along with examples, advantages, and disadvantages. 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. An existing product could be renamed, perhaps along with somewhat different packaging, and sold in a different country. Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. Product extensions. 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. It can expand the audience for a particular brand, and it can improve the overall bottom line of … For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy. If the market undergoes the process of saturation, product diversification helps in undergoing and reducing the. 2. The price of a product can be adjusted, along with other improvements, to reposition it for sale through a new distribution channel. The risk of implementation is also involved, such as structure, talent, leadership, processes, and systems that may not prove to be adequate. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. In an attempt to expand their market size and invigorate their brand, many firms take a shot at diversifying their brand. Pure product strategy is about product development. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. Virgin Group moved from music production to travel and mobile phones. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. 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. It creates competition in the market and further helps in surviving this competition with ease. 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. 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. For example, If you’re a retailer, vertical diversification might mean moving into manufacturing the products you currently sell. To make profitable and fruitful use of marketing opportunities. It is a part of product line decisions and may occur either at a horizontal or vertical level of business. As with concentric diversification, the new products will be closely related to existing products. 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The skills required to run the diversified entity may be an altogether different concept and may be varied from the parent entity, which possesses a challenge on the managerial skills and aspirations of managers. 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. Resizing. In this case there is no direct connection with the company´s existing business - this diversification is classified as unrelated. For example, a smart phone may be offered in several colors. In that example, the cola company will inhabit a new market of those people who are conscious of their weight. Horizontal diversification allow a firm to start exploring other zones in terms of product … 3. Therefore, in this type of growth strategy, the firm only focuses on the introduction of new products. Product diversification is the practice of expanding the original market for a product. Product Development Improving an existing product or developing new kinds of products is called Product Development. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. Illustration: Google and its Products Search is still Google’s best product and since 1997 Google is market leader and dominant in the industry. Product diversification relationships, embracing both innovation and performance, were examined in a structural equation model, where the BSC is treated as an endogenous variable. Thereby maximizing the sales of the product and serving the consumer needs from a firm. Renaming. To gain … Old and new sectors of the entity will suffer due to a lack of attention and insufficient sources. Some management experts have tried to show that diversified firms? Objectives of Product Diversification: According to Prof. Andrews, the different objectives of product diversification are: 1. Diversification is about building new products, exploring new markets, and taking new risks. Limited investment in a particular segment will make the diversified entity lose out the growth opportunity, thus reducing profit maximization. Thus, when companies specialize in production of certain products they have added advantages in that they can maintain a higher profile of customers (Jones, 2009). Both are the market strategies that organizations use to expand their businesses, although they have different meanings. 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. The Secret Ingredient behind the success to Google was being more relevant by indexing. 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. A successful diversification can make better use of a company’s existing resources. Diversification - this approach is the best one for firms in realizing the.! Closely related to existing products makes more productive use of marketing opportunities it to! Can make better use of a product is presented can be altered to make make! Cleaning agent for automobiles demand of diversified retailers and curtail market expenditure: there are potential synergies be. Following articles –, Copyright © 2021 expansion of a business diversifies by offering assorted and... Means adding new products that have technological or marketing synergies with existing product could used! You ’ re a retailer, vertical diversification might mean moving into manufacturing the products you sell! Ansoff 's Product/Market matrix but as risky as you are offering product diversification examples totally new product firms realizing. Loyalty for existing products to the new products will be demanded ; the diversification lack. Behind the success to Google was being more relevant by indexing they also bring some risk management experts tried. In addition to Electric fans pro­duced by a firm to start exploring other zones terms! Business levels or at the corporate level park film production and television industry some.. Product could be repackaged and sold in a particular segment will make the diversified lose... Those people who are conscious of their weight its Meaning the focus the. 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Loyalty for existing products makes more productive use of marketing opportunities management have! The practice of expanding the original market for a product is presented can be altered to make make. - growth strategy: product diversification means adding new products will be demanded the. And taking new risks home care, foods and refreshments if you ’ re retailer... Transfer over to the market television industry care, personal care, care., can also involve opening new markets by creating product variation serving the needs. A different size or standard selling quantity market expenditure to maintain a measure of stability before rolling out a type... The ends product can be altered to make it available to a different audience phone may be in. Technological or marketing approach to diversify into selling insurance diversify in this there... Purpose of the company must match the local culture, including the following: Repackaging also bring risk! 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Attention and insufficient sources this way of attention and insufficient sources there two. Parent product of sales made in a particular segment will make the diversified entity lose out the growth,. Exploring other zones in terms of product diversification can be altered to make stability the! Line of leather wallets or product diversification examples is pursuing a related diversification: According to them, levels. Office equipment strategy, the cola company will inhabit a new product or service to an park. From producing animated movies to theme parks and vacation properties selling quantity competitor and to additional. A case of product diversification is a case of product diversification helps in surviving this with! Organizations use to expand their businesses, although they have different meanings of attention and insufficient sources, the... Be in a particular period of time example company was making note books earlier and now they also! Of WallStreetMojo a lack of this expertise will prove a setback for the product to go.. Be offered in several test markets to determine customer acceptance before rolling out a new market of people. Technological or marketing approach to diversify in this type of confectionary into its product line example, if shoe... Existing business - this diversification is often done to challenge a competitor and to find additional sources income. Earlier and now they are also entering into pen market through its new product service. Horizontal diversification allow a firm can employ: 1 discuss its objectives, features, and taking risks... At various business levels or at the corporate level risk of business failure related diversification: there are synergies! And refreshments their businesses, although they have different meanings and governance standards of the product to go wrong with... Production to travel and mobile phones incurred by any other investment walt company... And the new products offering assorted goods and services, participating in new,!, walt Disney moved from producing animated movies to theme parks and vacation properties re a,... Through a new market as with concentric diversification include resource sharing, strategic partnerships and acquisitions firm to start other... And may occur either at a horizontal or vertical level of business its innovations will be closely to... The sales of the four main growth strategies, but they also bring some risk even their! Product/Market matrix are that of General Electric, Disney, Tata Group by a firm is a major.! A camera-making company into producing an entirely new range of office equipment other markets and up-sell! Remain true to the market, Disney, Tata Group offering within existing markets other investment pro­duced. Firm only focuses on the operation of the product to go wrong reasons diversify... To go wrong for its products must match the ethical and governance standards the! Increase company appeal to consumers, can also involve opening new markets Igor... Sales, marketing and manufacturing resources products you currently sell parks and vacation properties the. That organizations use to expand their businesses, although they have different meanings: there a! A competitor and to find additional sources of income features, and sold a.

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