Do you know what prevents businesses from growing?
Sticking with the same old same old. Society constantly changes and grows meaning your business marketing strategies should too.
So, how do you keep your business in the game? Adding a diversification strategy, of course.
There are many ways you can grow your business, but diversifying is a sure way to beat out the competition. In simple terms, a diversification strategy grows a business by adding more products or services.
By adding and diversifying your businesses’ products and services, you can increase your business’s growth. The best part? There’s very little risk in diversifying.
Even if your business does well enough with the same old products, it still won’t hurt to try a diversification strategy. Here’s what you need to know about diversification strategies and how they can help your business.
The What and Why of a Diversification Strategy
What exactly is a diversification strategy?
As mentioned above, it aims to grow a business by offering more products and services. Chances are there’s something in your industry you could add will attract new customers and benefit current ones.
Offering more products and/or services can boost seasonal lulls and increase sales which leads to higher profits. But there are many more great reasons to diversify.
There are 4 main types of diversification strategies. All involve diversifying your business but in different ways.
Horizontal diversification is a safe and popular option. It involves developing or acquiring new products or services that complement your business. You may need to invest in newer technology or a new marketing plan, but you’ll maintain your current customers’ interest.
Concentric diversification appeals to new customers. This includes adding new products with marketing or technological value to existing products. An athletic shoe company that starts offering athletic wear is an example.
Adding products or services that are different from your business is conglomerate diversification. It’s risky as you’ll enter a new market and appeal to new customers. An example is a car company starting to manufacture children’s toys.
Lastly, vertical diversification expands one part of the product cycle in a forward or backward direction. The business will have control of more than one stage of the supply chain. A technology manufacturing business starts its own retail store.
Deciding which diversification strategy is best for you depends on your business goals. Research, customers’ needs, and your product development strategy will help you decide which strategy is best.
If you want to stay ahead in your industry or start growing your business, then diversifying your business is the way to go.
Benefits of a Diversification Strategy
Diversifying your business’ products and services is a sure way to stay ahead in your industry.
Grow Your Business
Offering more products that appeal to a wider audience will allow you to gain new customers. A larger customer base means increased sales, higher profits, and growing business.
Are you unsure if you want to grow your business? Are you happy with what you have?
While it may feel safer to continue offering the same old products and services, your competition will start taking risks. As they start offering new and improved products, you might lose valuable customers. Potential customers may find your business old and outdated.
Adding new products or breaking into a new market will reignite business growth. But you need to do your homework. This means doing a market analysis and researching product ideas to find customers’ needs or wants.
From there, you can decide which diversification strategy will be the most successful for your business.
There’s Little Risk
To say there’s little risk is a bit of a stretch. However, you get to determine how much risk you want your business to take. Depending on which diversification strategy you choose, you could risk very little, if anything at all.
Avoid putting your business at risk. If this is your first time diversifying, start with the least risky strategy.
Starting with a horizontal diversification strategy results in little risk but lets you test the waters. Before you start coming up with ideas, research your customer base. Consider what additional products or services could benefit them.
With your existing customer base in mind, you can start designing products or services that complement what you already have. Plus, working with your existing client base requires little risk.
If your new products or ideas are a success, your current customers may recommend your business to others allowing you to gain new customers.
Tips For A Successful Diversification Strategy
How can you avoid putting your business at risk when investing in a diversification strategy?
Do Your Research
Regardless of which strategy you pursue, you should know what your current or potential customers want before you market a new product or service.
There are many ways to do this. Send out surveys, ask for customer reviews, and check out what the competition is doing—or not doing. These are just a few ways you can get an idea of what customers want.
If you don’t, you’ll waste time and money on something useless and start at the drawing board.
Seek One Opportunity at a Time
Let’s say you have several great ideas and based on your research, there’s a great chance they’ll do well. It’s tempting to pursue all of them, right?
Start with one opportunity at a time. If you’re unsure, pick the strongest idea or the one with the least amount of risk. A successful opportunity requires focus and simplicity.
Know The Pros and Cons
Diversifying your business is a great way to grow and stay ahead in your industry. However, there are several drawbacks you should be aware of:
- Diversifying too much too soon leads to watered-down products and services
- Expensive delays and mistakes caused by lack of knowledge in a new area
- Growth in core business areas may slow
- Stretching resources can lower your core products and services
The last thing you want is to lose business by diversifying. Knowing your risks will help you plan and invest in successful strategies.