Conglomerate diversification requires the company to enter a new market and sell products or services to a new consumer base. Choosing the right mix of investments and then periodically rebalancing and monitoring your choices can make a big difference in your outcome. Brand Diversification In some cases, you can diversify by selling the same product, or a similar one, under a different name. Additionally, the probability of failure is much greater in a conglomerate diversification strategy. When it comes to a diversified portfolio, more investment types may not equal better. Mergers are usually "friendly. Some of the websites will even estimate asset allocations based on responses to the questionnaires.
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.
What is Product Diversification?
An alternative form of that Avon has also undertaken is selling its products by mail order e. In both cases, Avon is still at the retail stage of the production process. According to Calori and Harvatopoulos , there are two dimensions of rationale for diversification. The first one relates to the nature of the strategic objective: Diversification may be defensive or offensive. Defensive reasons may be spreading the risk of market contraction, or being forced to diversify when current product or current market orientation seems to provide no further opportunities for growth.
Offensive reasons may be conquering new positions, taking opportunities that promise greater profitability than expansion opportunities, or using retained cash that exceeds total expansion needs. The second dimension involves the expected outcomes of diversification: Management may expect great economic value growth, profitability or first and foremost great coherence with their current activities exploitation of know-how, more efficient use of available resources and capacities. In addition, companies may also explore diversification just to get a valuable comparison between this strategy and expansion.
Of the four strategies presented in the Ansoff matrix, Diversification has the highest level of risk and requires the most careful investigation. Going into an unknown market with an unfamiliar product offering means a lack of experience in the new skills and techniques required.
Therefore, the company puts itself in a great uncertainty. Moreover, diversification might necessitate significant expanding of human and financial resources, which may detract focus, commitment, and sustained investments in the core industries.
Therefore, a firm should choose this option only when the current product or current market orientation does not offer further opportunities for growth. In order to measure the chances of success, different tests can be done: Because of the high risks explained above, many companies attempting to diversify have led to failure.
However, there are a few good examples of successful diversification:. From Wikipedia, the free encyclopedia. This article includes a list of references , but its sources remain unclear because it has insufficient inline citations. Please help to improve this article by introducing more precise citations.
December Learn how and when to remove this template message. Les Regles de conduite. Retrieved from " https: Articles lacking in-text citations from December All articles lacking in-text citations. Views Read Edit View history. This page was last edited on 15 May , at Firstly , companies might wish to create and exploit economies of scope, in which the company tries to utilize its exciting resources and capabilities in other markets.
This can oftentimes be the case if companies have under-utilized resources or capabilities that cannot be easily disposed or closed. Using a diversification strategy, companies may therefore be able to utilize all its capabilities or resources, and able to attract new business from market segments not catered to earlier. Secondly , managerial skills found within the company may be successfully used in other markets, where the dominant logic and managerial procedures of management can be successfully transferred to other markets.
Thirdly , companies pursuing a diversification strategy may be able to cross-subsidize one product with the surplus of another. This way, companies with a very diverse portfolio of products catering to different markets may potentially grow in power, and be able to withstand a prolonged period of price competition etc.
When having subsidized one product for a substantial period of time, the company might possibly be able to win a monopoly, making it the only supplier in the respective market. Fourthly , companies may also want to use a diversification strategy to spread financial risk over different markets and products, so that the entire success of the company is not reliant on one market or product only.
There may however be other reasons for companies to use a diversification strategy than the four listed above, and companies may very well benefit from a diversification strategy for other reasons. However, it is important for companies to realize the possible danger of diversifying its scope of operations to much. Companies might risk neglecting its core capabilities and become too diversified, where too many different products supplied to different markets might have negative effects on products and services, where e.
What is 'Diversification'
Diversification strategies are used to expand firms' operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations. Diversification is a strategy that takes a company into new markets with new products or services. Companies may choose a diversification strategy for different reasons. Firstly, companies might wish to create and exploit economies of scope, in which the company tries to utilize its exciting resources and capabilities in other markets. Analyze diversification strategies based on their potential revenues and affect on your core business to achieve them. Diversification For example, if you have a dine-in restaurant in one town, opening a second restaurant in the next town is expansion, not diversification.