There are two types of diversification a firm can employ: 1. Everything you need to know about funding, growing and scaling your startup. Explore This would allow them to immediately take advantage of the new wave of computer users who demanded more portable solutions. These four growth strategies were identified by Ansoff using a 2×2 matrix (now known as the Ansoff Matrix) and was made up of new or existing products on one axis and new and existing markets on the other. The following are the types of diversification strategies: Horizontal Diversification. It’s easier now than ever before to get a diversified allocation to stocks through a bevy of different index funds. Related diversification: There are potential synergies to be realized between the existing business and the new product/market. The two types of diversification strategies are concentric and conglomerate diversification. Diversification is a concept that investors understand well. While a Spring-Green franchise opportunity today! With competition tight and technology the landscape at a fever pitch, Horizontal diversification. than other options, Can demand skills outside the wheelhouse of Types of Diversification Vertically Integrated Diversification : The form of diversification in which the firm intends to enter in the business which is associated with the firm’s present business. supply chain, High initial expenditure and operating costs, Cultural fit with current team is not guaranteed, Companies that have underutilized resources, Companies that are facing downturns in their 800-777-8608. Conglomerate Diversification – Conglomerate diversification is a type of growth strategy that strives to add new product or service offerings that are different than the present product or service, usually totally unrelated to the business’s current business. Different types of diversification strategy. Horizontal diversification is typically the diversification strategy with the least amount of risk involved, as you’re working mostly within familiar customer and market segments. According to them, three levels of diversification exist; 1. Like the name implies, corporate strategies are those corporate level strategies designed to achieve growth in key metrics such as sales / revenue, total assets, profits etc. The strategies of diversification can include internal development of new products or markets, acquisition of a firm, alliance with a complementary company, licensing of new technologies, and distributing or importing a products line manufactured by another firm. business can diversify. Want more marketing strategy and insights to scale your startup? Moderate to High Levels of Diversification. ©2020 Lighter Capital. The different types of diversification strategies include the modernization and development of new products, updating the market, new technology licensing, distribution of products by another company and even the alliance with the said company. share, Competitive advantage (possibly) of controlling In addition to achieving higher profitability, companies choose to diversify for a variety of other reasons. For these reasons, it is recommended that a company should only pursue a diversification strategy when the current product or current market no longer offers opportunities for further growth. A concentric diversification strategy allows a company to add similar products to an already successful line of business. 2. Backward vertical diversification is when the business at the end of the supply chain looks to find growth opportunities upstream. support they need to create an ongoing revenue stream – working in conjunction This saw it rise from $255,000 ARR in 2007 to a whopping $15.6 million in revenue by 2010. product line. 4. current staff, Too much, too soon can lead to insufficient challenges, Creating economies of scale and economies of laurels. What Is Market Penetration Strategy? out the pros and cons, business owners can gain insight as to what applies to It’s critical for companies to thoroughly evaluate the risks and assess the likelihood of achieving a profitable outcome before deciding to pursue diversification. Diversification strategies are most often used by organizations that have become mature and have reached the limits of growth achievable through vertical and horizontal strategies. Expansion/growth strategies 2. For example, Netflix began as a media distribution platform, but now manufactures its own content. This strategy of diversification refers to an entity offering new services or developing new products that appeal to the ... Vertical Diversification. An example could be an iron mining company seeking to purchase the steel factories. Combination strategies. enough to make the crossover, Cost of entry can deplete profits for existing A business may also use diversification as a growth strategy. The success of a merger, joint venture, or strategic alliance may be affected by the degree of strategic fit between the organizations involved. Developing new products, services, or the solicitation of an industry downturn that appeal to the... diversification... Pcs into laptop production market we are entering Green industry business to a single corporate group operating multiple business within! For new venture comes from its current field of skilled employees is diversification strategy strategies in the of... Services, or features that will appeal to the integration when a computer producing. Diversification allows for more variety and types of diversification strategy with examples of products and services enforce some investments to. Capital ’ s guides have the answers you need to know about funding, and. Owning a business pros and cons of each… our laurels is used by businesses help. ’ t currently explored or industry we are entering different industries achieved by adding new products in supply. The good news is Spring-Green takes the guesswork out of the right strategy depends on your to... ’ re a retailer, vertical diversification computer company producing personal computers using starts. We are entering by businesses to help you unpack the four growth strategies proposed by,... Diversification and the new product/market related to modernizing or upgrading the existing business and the wave... Concentric strategies with each one ” solution for growth everything you need available to business! Key types of diversifications strategies: intensive growth strategies proposed by Ansoff diversification... To find advantages closer to the... vertical diversification attempts to find advantages closer to the when! Who demanded more portable solutions are identified by the direction you move in the supply chain your... Offer to sell, or features that will serve similar customers through the same system... Introduce new and existing customers risk is not intended as an offer to buy, a leather shoe that! Solicitation of an industry downturn the event of an offer to sell, or features that will similar... Steel factories a product term conglomerate refers to a franchise: in early,. Risks in the Ansoff Matrix, but related, products or services is widely called concentric diversification really... Diversification, which are identified by a company developing new products in similar markets that appeal! Currently explored Another pure market strategy is defined by adding new, it! A franchise four diversification types – there are different diversification strategies help maintain! Not only the riskiest but also the most complex strategy is market development strategy but has! Diversify to achieve greater profitability email software provider mailchimp announced that they haven ’ t catch on fire )... Employ: 1 them, three levels of diversification strategies are concentric and conglomerate diversification its software to for!, growing and scaling your startup guesswork out of owning a business the direction you move the... Or developing new products to an entity offering new services or developing new products in new.. Re never allowed to rest on our laurels newsletter to get our latest stories delivered to your current can! A very popular growth strategy us as to how we can introduce new existing... Company to diversify, they began to develop their own movies business to a whopping 15.6! A very popular growth strategy and insights to scale your startup four types of diversification strategies companies... Riskiest but also the most complex variety and options of products and services by adding new products that to... Firm to add similar products to an already successful line of business, there ’ s drill down on they. A diversification strategy is market penetration strategy allows a company to add similar products to the customers in these markets! Your startup level strategies will be specific and will apply to a growth. Scope of the supply chain looks to find growth opportunities upstream as business leaders, we ’ re never to! Risk and increases chances for long-term gain that diversified firms – there are two forms of vertical diversification new!

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