Product Diversification - Learn About the Strategies of Diversification
Forward integration offers the following benefits: This strategy can attract new customers while making existing customers more likely to remain enthusiastic about frequenting these restaurants.
There is an opportunity of income when one industry's sales falter. As discussed earlier, growth in sales may make the company more attractive to investors. This occurs when your captive audience is introduced to something similar or that's related to a product it already buys and enjoys. In the example of the pizza restaurant, hotforex free vps owner could decide that her concentric strategy involves buying other local pizza restaurants as a means of increasing product distribution and expanding into new market areas.
Enables Business Synergy
Finding an attractive investment opportunity requires the firm to consider alternatives in other types of business. Philip Morris's acquisition of Miller Brewing was a conglomerate move.
Business owners must assess the benefits and drawbacks of each type of diversification, before they decide which one to pursue. If sugar mills own sugarcane farms, they are said to have diversified through backward integration.
Conglomerate Diversification Elements
Cross-selling is the process of selling a similar or related product to a customer. Conglomerate Diversification In conglomerate diversification strategies, companies will look to enter a previously untapped market.
The company has to leverage on the brand loyalty associated with current products. It utilizes surpluses into new profitable areas.
When you diversify with a concentric strategy, you can rely on your past experience selling your main product or service to help you develop and market the new product or service. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification. Diversification strategies help to increase flexibility and maintain profit during sluggish economic periods.
Horizontal Diversification Horizontal diversification allow a firm to start exploring other zones in terms of product manufacturing. This concentric strategy can provide several key benefits to a growing business, including the ability to reach a wider audience. When you implement concentric diversification, you necessarily boost your product presence, which can result in higher sales because diversification strategy concentric conglomerate see this product more often and in more interesting ways.
Reasons for concentric diversification: Brand loyalty may also be reduced when quality is not managed. About the Author Sampson Quain is an experienced content writer with a wide range of expertise in small business, digital marketing, SEO marketing, SEM marketing, and social media outreach.
Rather than selling through intermediaries, firms that diversify through forward integration maintain their own sales outlets. While this business owner has diversified into different types of industries, there is no relationship or opportunity for promotional marketing that links any of these businesses together.
Concentric Diversity Elements
Reasons for conglomerate diversification: Backward integration suffers from the following limitations: After acquiring those new restaurants, the owner could employ a differentiation strategy in which some of the restaurants offer entertainment such as video games and live music.
Vertical diversification defines whether to perform some or all of these functions. The Advantages of Conglomerate and Concentric Diversity The primary advantage of conglomerate diversity is that it helps insulate business owners against a downturn in one industry.
A cost- benefit analysis must, therefore, be carried before the firms decide to diversify through forward integration. For firms producing multiple products, there can be problems in coordinating multiple retail outlets.
Strategic Management - Diversification
Competition between strategic business units for resources may entail shifting resources away from one division to another. Backward Integration: Caution must also be exercised in entering businesses with seemingly promising opportunities, especially if the management team lacks experience or skill in the new line of business.
- For example, when a computer company producing personal computers using towers starts to produce laptops, it uses concentric strategies.
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- After reading this article you will learn about the horizontal and vertical diversification of firms.
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Enables Business Synergy Concentric integration also helps to achieve synergy, which is the ability of smaller departments or division to achieve larger goals than would be possible as separate entities. The concentric strategy is used when a firm wants to increase its products portfolio to include like products produced within the same company, the horizontal strategy is used binary option beast review the company wants to produce new products in a similar market, and the conglomerate diversification strategy is used when a company starts operating in two or more unrelated industries.
This widens market base of the firms and increases their profitability.
Bombay Dyeing, DCM etc. Conglomerate diversification: For example, a ketchup manufacturer starts producing salsa, using its current production facilities.
What Are the Benefits of Concentric Diversification?
A business owner that employs a concentric diversification strategy seeks to broaden his distribution network without going too far afield in what he offers his target audience. Practice Test Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business.
This is often done using mergers and acquisitions. For example, the owner of a car wash may also choose to buy a dry cleaning store, a check-cashing business, and a furniture store. Without some form of strategic fit, the combined performance of the individual units will probably not exceed the performance of the units operating independently.
Decision-making may become slower due to longer review periods and complicated reporting systems.
Difference between Concentric and Conglomerate Diversification
Maintaining own retail outlets is costly for the firms. The Disadvantages of Conglomerate and Concentric Diversity The main disadvantage of conglomerate diversity is that the lack of focus on one type of business can spread owners thin, and the lack of expertise in one industry can cause that business to fail.
Concentric diversity also helps increase market share by enabling businesses to cross-sell to their existing customers.