The first one relates to the nature of the strategic objective: Product diversification involves addition of new products to existing products either being manufactured or being marketed. Leave a Reply Cancel reply Your email address will not be published. It will take them time to respond to this setback and restore their market position. Some of the approaches to this strategy include:. Diversification strategy is a form of growth strategy which helps the organizational business to grow. Hi Maddy, Thank you for the comment.
Diversification is one of the four alternative growth strategies in the Ansoff Matrix. A diversification strategy achieves growth by developing new products for completely new markets. A diversification strategy achieves growth by developing new products for completely new markets.
It relates to moving to new products or services that have no technological or commercial relation with current products, equipment, distribution channels, but which may appeal to new groups of customers. The major motive behind this kind of diversification is the high return on investments in the new industry. Furthermore, the decision to go for this kind of diversification can lead to additional opportunities indirectly related to further developing the main business of the organization such as access to new technologies, opportunities for strategic partnerships, etc.
In this type of diversification, synergy can result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the organization. In this type of diversification there is little or no concern that is given to achieve marketing or production synergy. One of the most common reasons for pursuing a conglomerate diversification strategy is that opportunities in the organizational current line of business are limited.
Finding an attractive investment opportunity requires the organization to consider alternatives in other types of business.
Organizations may also pursue a conglomerate diversification strategy as a means of increasing the growth rate. Growth in sales can make the organization more attractive to investors. The disadvantage of a conglomerate diversification strategy is the increase in administrative problems associated with operating unrelated businesses.
Horizontal integration occurs when an organization enters a new business either related or unrelated at the same stage of production as its current operations. In this case the organization relies on sales and technological relations to the existing product lines.
Horizontal diversification is desirable if the present customers are loyal to the current products and if the new products have a good quality and are well promoted and priced. Moreover, the new products are marketed to the same economic environment as the existing products, which may lead to rigidity or instability.
This means that the organization goes into production of raw materials, distribution of its products, or further processing of the present end product. Backward integration allows the diversifying organization to exercise more control over the quality of the supplies being purchased. Backward integration can be undertaken to provide a more dependable source of needed raw materials.
Forward integration allows the organization to assure itself of an outlet for its products. Forward integration also allows the organization better control over how its products are sold and serviced.
Furthermore, the organization may be better able to differentiate its products from those of its competitors by forward integration. Corporate diversification involves production of unrelated but definitely profitable goods. It is often tied to large investments where there may also be high returns. One form of internal diversification is to market existing products in new markets. An organization may elect to broaden its geographic base to include new customers.
The organization can also pursue an internal diversification strategy by finding new users for its current product. Another form of internal diversification is to market new products in existing markets.
Generally this strategy involves using existing channels of distribution to market new products. It is also possible to have conglomerate growth through internal diversification. This strategy would entail marketing new and unrelated products to new markets. This strategy is the least used among the internal diversification strategies, as it is the most risky. External diversification occurs when an organization looks outside of its current operations and buys access to new products or markets.
Mergers are one common form of external diversification. Mergers occur when two or more organizations combine operations. These organizations are usually of similar size. This growth strategy is more risky than market penetration because of the fact the business is focusing on a new market which it may or may not be successful in. Some of the approaches to this strategy include:.
This refers to a growth strategy that involves introducing a new product into a new market. This strategy is the most risky from the four because the business is moving into a market in which it has minimum experience. This strategy is usually adopted by large organisations looking to expand their product portfolio and profitability through dispersing their risk in different markets.
Market Penetration This growth strategy involves the organisations focusing on selling existing products into existing markets. Some of the aims of market penetration include: Ensuring that market share is maintained or increased for current products — This may involve using competitive price strategies, Sales promotions, advertising etc. Increase the level of usage by existing customers — This strategy may involve implementing loyalty schemes to encourage customers to spend more.
It will take them time to respond to this setback and restore their market position. Diversification can occur at two levels: When it happens at the business unit level, you will most likely see your organization expanding into a new segment of its current market. At the organizational level, you will most likely find you are involved in integrating a new organization into your existing one.
As with each of the other growth strategies there are three broad approaches to how your organization implements a policy of diversification: Some organizations refer to these types of diversification as different 'integration' approaches because this is actually what happens.
The new product or service and its market must be 'integrated' into the organizational structure to be successful. Full Diversification - this approach is the most risky as you are offering a totally new product or service to an unknown market.
It will also take considerable time to accomplish. An example of this strategy would be: A fresh trout distributor decides to diversify into selling insurance. Backward diversification - this is where your organization decides to diversify by offering a product or service that relates to the preceding stage of your current product or service.
The distributor decides to invest in a Scottish trout farm, thereby encroaching on the role of his or her supplier. Forward diversification - this is the situation where your organization diversifies into the products or services that relate to a later stage that follows your current offering. The distributor negotiates contracts directly with the supermarkets and other end users by selling online, negating the need to work with wholesalers.
Diversification is a corporate strategy to enter into a new market or industry in which the business doesn't currently operate, while also creating a new product for that new market. This is the most risky section of the Ansoff Matrix, as the business has no experience in the new market and does not know if the product is going to be successful. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. The Ansoff Matrix has four alternatives of marketing strategies; Market Penetration, product development, market development and diversification. Market Penetration When we look at market penetration, it usually covers products that are existence and that are also existent in an existing market.