product diversification examples

For example company was making note books earlier and now they are also entering into pen market through its new product. For example, If you’re a retailer, vertical diversification might mean moving into manufacturing the products you currently sell. To make stability in the earning and growth of an organization. Apple moved from PCs to mobile devices. Diversification occurs when a business develops a new product or expands into a new market. To gain … It involves decision risk that involves the choice of the product and market for the product to go wrong. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. 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. Related diversification: There are potential synergies to be realized between the existing business and the new product/market. Diversification into various industries or product lines helps in creating stability for the company during economic changing scenarios. In that example, the cola company will inhabit a new market of those people who are conscious of their weight. Thus with diversification the income flow is assured during various seasons. Both are the market strategies that organizations use to expand their businesses, although they have different meanings. The company's brand categories include: home care, personal care, foods and refreshments. You can learn more about from the following articles –, Copyright © 2021. An industry analyst explains: This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. According to them, three levels of diversification exist; 1. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. For example, a company entering new markets with existing products makes more productive use of its sales, marketing and manufacturing resources. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital, and finance, etc. 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. Repricing. The intent is to remain true to the original purpose of the product, but to adjust it to match the local culture. If the market undergoes the process of saturation, product diversification helps in undergoing and reducing the. The focus on the operation of the company and its innovations will be limited. Canon diversified from a camera-making company into producing an entirely new range of office equipment. Consequently it can make sense to launch in several test markets to determine customer acceptance before rolling out a new concept more broadly. 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. Accounting BestsellersAccountants' GuidebookAccounting Controls Guidebook Accounting for Casinos & Gaming Accounting for InventoryAccounting for ManagersAccounting Information Systems Accounting Procedures Guidebook Agricultural Accounting Bookkeeping GuidebookBudgetingCFO GuidebookClosing the Books Construction AccountingCost Accounting FundamentalsCost Accounting TextbookCredit & Collection GuidebookFixed Asset AccountingFraud ExaminationGAAP GuidebookGovernmental Accounting Health Care Accounting Hospitality Accounting IFRS GuidebookLean Accounting Guidebook New Controller GuidebookNonprofit Accounting Oil & Gas Accounting Payables ManagementPayroll ManagementPublic Company Accounting Real Estate Accounting, Finance BestsellersBusiness Ratios GuidebookCorporate Cash ManagementCorporate FinanceCost ManagementEnterprise Risk ManagementFinancial AnalysisInterpretation of FinancialsInvestor Relations GuidebookMBA GuidebookMergers & AcquisitionsTreasurer's Guidebook, Operations BestsellersConstraint ManagementHuman Resources GuidebookInventory Management New Manager Guidebook Project ManagementPurchasing Guidebook. Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix. For example, a car company decides to build a sports car that is positioned at the top end of its product line. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. 1%. Combined Strategies – Diversification; Product development. Product diversification is the practice of expanding the original market for a product. It helps in multiple investments, which helps in absorbing losses incurred by any other investment. Therefore, in this type of growth strategy, the firm only focuses on the introduction of new products. Product diversification helps in maximizing the utilization of available resources. Concentric diversification, a strategy used to increase company appeal to consumers, can also involve opening new markets by creating product variation. The new product that is manufactured by the company must match the ethical and governance standards of the parent product. 2. Objectives of Product Diversification: According to Prof. Andrews, the different objectives of product diversification are: 1. Similarly, Walt Disney company diversified its business from being an animation industry to an amusement park film production and television industry. Thereby maximizing the sales of the product and serving the consumer needs from a firm. This has been a guide to What is Product Diversification & its Meaning. In an attempt to expand their market size and invigorate their brand, many firms take a shot at diversifying their brand. - Growth Strategy: Product diversification helps the business to capture other markets and even up-sell their products. Here we discuss its objectives, features, and risk along with examples, advantages, and disadvantages. 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. Product diversification can occur at various business levels or at the corporate level. Product diversification means adding new products or services to expand the business offering within existing markets. 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. For example, manufacture and sale of sewing machines in addition to electric fans pro­duced by a firm is a case of product diversification. The manner in which a product is presented can be altered to make it available to a different audience. To make profitable and fruitful use of marketing opportunities. Moderate to High Levels of Diversification. Product Diversification Example. Horizontal Diversification. 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. A product could be repackaged into a different size or standard selling quantity. For example, a ketchup manufacturer starts producing salsa, using its current production facilities. Limited investment in a particular segment will make the diversified entity lose out the growth opportunity, thus reducing profit maximization. The Secret Ingredient behind the success to Google was being more relevant by indexing. Product Development Improving an existing product or developing new kinds of products is called Product Development. For example, a product normally sold as a single unit could be packaged into a quantity of ten and then sold through a warehouse store. 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. It creates competition in the market and further helps in surviving this competition with ease. It is a part of product line decisions and may occur either at a horizontal or vertical level of business. For example, if the shoe producer enters the business of clothing manufacturing. Horizontal diversification allow a firm to start exploring other zones in terms of product … ‘Brand diversification’ commonly refers to a process of launching a new product in a new market, as seen in Ansoff’s Growth Matrix; examples of such strategy are the McCafe, Nike’s golfing collection, IBM’s business intelligence & analytics, and UberEATS. While this can help lower costs by covering all the needs of your business “in house”, the downside is that it can reduce the flexibility of your business and reduce the opportunity for horizontal diversification in the future. A successful diversification can make better use of a company’s existing resources. An example of this strategy would be: A fresh trout distributor decides to diversify into selling insurance. The risk of implementation is also involved, such as structure, talent, leadership, processes, and systems that may not prove to be adequate. 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. To meet the demand of diversified retailers and curtail market expenditure. The asset base of a company is determined by the amount of sales made in a particular period of time. There are many resources available in the market which could be used for the expansion of a business. The challenges involved in market diversification are research and planning, advertising, marketing, and activities needed to sell a product to a new segment. There are two types of diversification a firm can employ: 1. 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. Examples of Business Diversification. vary according to their levels of diversification. usually undertaken with the motive of ensuring survival or growth and expansion. 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. 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. Both are effective growth strategies, but they also bring some risk. Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. There are a number of ways to engage in product diversification, including the following: Repackaging. A business diversifies by offering assorted goods and services, participating in new industries, or finding multiple uses for its products. Illustration: Google and its Products Search is still Google’s best product and since 1997 Google is market leader and dominant in the industry. 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. It can expand the audience for a particular brand, and it can improve the overall bottom line of … For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles. Product line extension is another form of diversification that aim at reaching those market segments which the firm has not yet penetrated. Market Diversification Benefits. Old and new sectors of the entity will suffer due to a lack of attention and insufficient sources. 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). New skillsets will be demanded; the diversification and lack of this expertise will prove a setback for the company. You may require new technology, skills or marketing approach to diversify in this way. Moderate to High Levels of Diversification. A company that is widely diversified will not be in a position to respond quickly to various market changes. Diversification is a corporate strategy to increase sales volume from new products and new markets. When the business spreads across multiple market segments, it lowers the risk of business failure. As with concentric diversification, the new products will be closely related to existing products. An existing product could be renamed, perhaps along with somewhat different packaging, and sold in a different country. Some management experts have tried to show that diversified firms? 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. Concentric diversification strategies are rampant in the food production industry. The Business Dictionary definition of diversification highlights common reasons companies diversify markets. Virgin Group moved from music production to travel and mobile phones. Product Diversification Techniques. Product diversification has been found to make companies make lower levels of profits. 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. This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business. For example company was making note books earlier and now they are also entering into pen market through its new product. Some examples of concentric diversification include resource sharing, strategic partnerships and acquisitions. For example, a smart phone may be offered in several colors. 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). In product diversification, managing and additional product development is a major challenge. 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. Optimum utilization of production and market facilities is offered. Pure product strategy is about product development. 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. However, there is a paradox about which strategy is the best one for firms in realizing the ends. Here's a recap of Unilever brands by category:Home care - Omo, Persil, Surf, Comfort, Cif, and… This strategy is used to increase the sales associated with an existing product line, which is especially useful for a business that has been experiencing stagnant or declining sales. For example, a leather shoe producer that starts a line of leather wallets or accessories is pursuing a related diversification strategy. 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. This is almost always done through brand extensions or new brands, but in some cases the product modification may "create" a new market by creating new uses for the product. TABLE 3HIGHLY CITED DOCUMENTS: 2000-2009 Total Citations Full Citation Index For Document 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. Product diversification relationships, embracing both innovation and performance, were examined in a structural equation model, where the BSC is treated as an endogenous variable. Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets. Resizing. 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. For example, an ice-cream business adds a new type of confectionary into its product line. The manner in which a product is presented can be altered to make it available to a different audience. 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. Brand extensions. Market diversification is often done to challenge a competitor and to find additional sources of income. Diversification is about building new products, exploring new markets, and taking new risks. There are a number of ways to engage in product diversification, including the following: Repackaging. The primary consideration is to sell more products by introducing new products to the market. Diversification also requires additional management and operational resources. GE diversified its products from being an electricity-related company into segments like aviation, healthcare, digital industry, venture capital, and finance, etc. It is also sometimes called product differentiation. 2. A business is defined as a division, product line, or other profit center within its parent … In this case there is no direct connection with the company´s existing business - this diversification is classified as unrelated. Some very famous stories of product diversification are that of General Electric, Disney, Tata Group. The price of a product can be adjusted, along with other improvements, to reposition it for sale through a new distribution channel. Low Levels of Diversification. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. 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. Walt Disney moved from producing animated movies to theme parks and vacation properties. 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 will also take considerable time to accomplish. 3. Product diversification can be expensive, especially when launching it broadly in a new market. Product extensions. TATA Group initially ventured into the steel manufacturing business and diversified it into other segments such as hospitality, aviation, automobile, power, etc. But as risky as it can be, it may also be a great way to maintain a measure of stability. Renaming. That is a prime example of what product diversification can do. Full Diversification - this approach is the most risky as you are offering a totally new product or service to an unknown market. Participating in new industries, but to adjust it to match the local culture market of people. Company diversified its business from being an animation industry to an amusement product diversification examples... A fresh trout distributor decides to diversify in this way but they bring. Park film production and television industry is about building new products and business opportunities... 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Are the market strategies that organizations use to expand the business spreads across multiple market segments, lowers! Books earlier and now they are also entering into pen market through its new product or into... Old and new sectors of the parent product partnerships and acquisitions and now they also. Investment in a particular period of time the income flow is assured during various.. Car company decides to diversify in this case there is no direct connection with the motive of ensuring or! Strategy is the practice of expanding the original purpose of the four main growth,. Additional product Development made in a different size or standard selling quantity highlights reasons... A paradox about which strategy is the most risky as it can better... Standard selling quantity make better use of its sales, marketing and manufacturing resources to. Would be: a fresh trout distributor decides to build a sports car that is widely diversified will be! Require new technology, skills or marketing synergies with existing product or developing kinds. Diversification: According to Prof. Andrews, the new product are also into... Use to expand the business to capture other markets and even up-sell their products the!

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