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7 reasons diversification strategy is better in the long run

April 17, 2019 By Hitesh Bhasin Filed Under: Strategy

Diversification strategy is observed when new products are introduced in a completely new market by the company. The strategy is loaded with hurdles because it requires a lot of investment and a lot of man power as well as focus of the top management. But still, in the long run, diversification strategy is one of the best growth strategy in the long run. Here are seven reasons for the support of diversification strategy.

Table of Contents

  • 1) You get more product variety 
  • 2) More markets are tapped 
  • 3) Companies gain more technological capability 
  • 4) Economies of scale 
  • 5) Cross selling
  • 6) Brand Equity 
  • 7) Risk factor is reduced 

1) You get more product variety 

When diversifying your products, you are bound to do good research and development which results in introducing more variety and options of products in hand to capture the new market. With more product variety, you capture more customer attention and your brand receives a tremendous boost as well as the profitability of the company rises. Thus having more products is good for your business.

2) More markets are tapped 

Your reach increases when you have more products and you need more markets to sell them. New products plus new markets is what defines the diversification strategy. More markets means your distribution increases and overall turnover increases. Although penetrating the markets involve a lot of cost and expenditure, once penetrated, the new market will bring regular profits, which is the goal of any business oriented company. Thus, the diversification strategy is a good market penetration strategy as well.

3) Companies gain more technological capability 

With more R&D expenditure, it is likely that the company will develop technological capabilities. The goal of R&D is mostly technological advancement – bringing new and better products in the market. Thus, once you implement diversification strategy, you are bound to gain more technological capability for your company.

Also Read  Corporate Social Responsibility: Meaning and Examples Included

4) Economies of scale 

Economies of scale comes in the picture when you are using same fixed Cost for more output. Whenever you are using the same factory to manufacture more number of products, naturally with advantage of economies of scale, your cost comes down and margins goes up. This is another advantage of diversification strategy.

5) Cross selling

Cross selling becomes more possible with the diversification strategy. You can introduce older products in the new market or introduce the new products in older and more mature market. An example in this case is LG which gives a large variety of products to end consumers and hence cross sells its own products.

6) Brand Equity 

Because brand equity receives a substantial boost with more products and more presence in the market, your brand surges in brand recall as well as brand reach. This results in long term benefits for your brand. Perfect example in this case is Samsung. Samsung smart phones have created a tremendous boost for the Samsung brand, which has resulted in all of its products receiving a positive vibe because its Samsung.

7) Risk factor is reduced 

Due to diversification strategy, and introduction of new products in new markets, your reliance on one single product or one single market is reduced and you begin to have advantage of more products and more markets to rely on. Thus, overall risk of the company is reduced.

All marketing experts say, that a business which does not keep adding new customers is bound to fail in the long run. At the same time, a company which does not expand at the right time is bound to lose a lot of its customers and market share. The diversification growth strategy helps the company expand in the right direction and manages risk for the company at the same time contributing to the bottom line. Thus, Diversification strategy is very beneficial for the company in the long run.

Also Read  The best example for Time of Entry of a product

Here is a video by Marketing91 on Diversification Strategy.

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About Hitesh Bhasin

Hi, I am an MBA and the CEO of Marketing91. I am a Digital Marketer and an Entrepreneur with 12 Years of experience in Business and Marketing. Business is my passion and i have established myself in multiple industries with a focus on sustainable growth. You will generally find me online at the Marketing91 Academy.

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Comments

  1. alaa says

    dear ,,
    when Icreat new service for excisting product what this strategy name?

    Reply

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Accordions
Part 1 - Models of Strategy
  1. Ansoff Matrix - The growth share Matrix of Ansoff
  2. BCG Matrix or BCG analysis
  3. Product Life Cycle
  4. Benefits and limitations of Product life cycle
  5. SWOT Analysis
  6. 7s Framework by McKinsey
  7. Porter's Diamond Model
  8. SOAR analysis explained
  9. The GE McKinsey matrix
  10. Porter's Value Chain Model
Part 2 - Models of Strategy
  1. Michael Porter's Five forces model for industry analysis
  2. Mintzberg's 10 school of thoughts for Strategy formulation
  3. PESTLE analysis
  4. Competitive profile matrix and analysis
  5. Competitor Analysis
  6. Strategies of market leaders
  7. Product Differentiation
  8. Types of Differentiation Strategies
  9. Gap analysis
  10. Process of Gap Analysis
Part 3 - Models of Strategy
  1. EPRG Framework and its 4 Stages
  2. Opportunity analysis
  3. Core competency
  4. Diffusion of Innovation
  5. What are Strategic business units and their advantages
  6. 6 reasons why Strategic Business Units are Important
  7. Sustainable competitive advantage (SCA)
  8. The Supply and Demand Curve
  9. Triple Bottom Line Concept
  10. Vertical integration - Three types of vertical integration
Part 4 - Models of Strategy
  1. What is 3C Model by Ohmae?
  2. What is Bowman's Strategy Clock?
  3. What is CAGE Framework?
  4. What is Disruptive Innovation?
  5. What is House of Quality?
  6. What is Technology Life Cycle?
  7. What is The Kraljic Matrix - Portfolio Purchasing Model?
  8. What is Vrio Analysis?
  9. Defensive Marketing
  10. Economies of Scale
Part 5 - Models of Strategy
  1. Product line competition Explained
  2. What is Six Sigma? Six Sigma Concept Explained
  3. What is Total Quality Management?
  4. What is Turnaround Management?
  5. Wheel of consumer analysis
  6. What is Benchmarking? Importance of Benchmarking
  7. 9 Types of Benchmarking
  8. 7 reasons diversification strategy is better
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