This is an example of expanding into a new market with newly created or acquired products. Expanding in an existing market is defensive diversification, while expanding into new markets is offensive diversification. Defensive diversification generally recognizes the existence of competition in any market.

The company is defending its market share and seeking to grow it by introducing new products. Offensive diversification seeks to generate market share in a new market, either with related or unrelated products. Concentric diversity concerns a growth strategy where any new or acquired products are closely related to existing products or to the companys core competencies.

This approach allows the company to employ resources and take advantage of existing competencies in introducing the new product. The new products will generally relate closely to existing products or product lines with the purpose of leveraging brand awareness and customer loyalty. It generally involves targeting previously identified market segments that have not been fully addressed.

Horizontal diversification concerns the introduction of new products to a new market segment generally forming a new business in the process.

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The new products and business, however, are designed to appeal to an existing customer base. As with concentric diversification, the new products will be closely related to existing products. This strategy depends heavily upon customer loyalty for existing products to transfer over to the new products and business.

An example of horizontal diversification is the when company A, which makes laundry detergent, seeks to enter the market for selling washing machines. Brand recognition and customer loyalty for the detergent may carry over to the business of selling washing machines. Conglomerate diversification involves launching a new product or product lines that are unrelated to existing products, resources, or core competencies. The company will generally attempt to leverage any brand recognition or customer loyalty in the new market.

An example would be Company A, which sells electronics, venture into selling clothing apparel. By diversifying vertically, a business can leverage its existing competencies. It can also reduce costs and remain true to its value chain — the activities a company performs to bring a product or service to the market. Perhaps the best-known example of a successful vertical diversification strategy is Apple.

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Apple manufactures its own custom chips, screen technologies and touch ID fingerprinting for iPhones and iPads. This is an example of backward vertical integration. At the same time, Apple has achieved forward vertical diversification by opening a chain of retail stores that exclusively sell Apple products.

When a company expands into a new industry it does not currently operate in, it is pursuing a strategy of lateral diversification. For example, an airplane engine manufacturer could develop a range of vacuum cleaners for the consumer market. Or, our shoe manufacturer could open a driving school. There is no connection between the new market and the core business.

An example of this is the Virgin brand. What started out as a brick and mortar record retailer diversified into travel and leisure, entertainment, financial services and now space travel. This kind of extreme diversification worked because of the vision and extraordinary risk tolerance of its founder, Richard Branson. All businesses strive for growth. But the roads they take to get there vary and the vehicles they use can take many different forms. Developed by mathematician and business manager, Harry Igor Ansoff, the Ansoff matrix provides a framework for formulating growth strategies.

According to its creator, when the goal is to generate growth, two levels of decision-making surface.

1. Vertical Integration in Strategic Management?
2. Diversification Strategy – IspatGuru?
3. Diversification Strategy - organization, levels, advantages, manager, type, company, business!

Should your business penetrate new markets or should it stay in its existing markets? And, would you like to extend your product portfolio or not?

Strategic Management - Diversification

Market penetration is the strategy of increasing sales of current products to current markets. The objective is to increase the market share of current products. This can be achieved through competitive pricing strategies, discounts, sales promotions and customer loyalty schemes. Market development is a growth strategy in which a company tries to sell its current products to new markets.

Vertical integration and horizontal integration

For example, selling the product abroad, or offering it online in addition to brick and mortar sales. This strategy is riskier than market penetration because you have to develop traction in the new market. Product development brings new products into existing markets, such as the toothpaste manufacturer creating a line of toothbrushes.

This strategy works well for a business that has a solid customer base in which the existing product line is reaching saturation. There's an emphasis on market research — to pursue a product development strategy, you must be attuned to your customers' needs. Diversification is the strategy of bringing completely new products or services to market. Ansoff pointed out that diversification is fundamentally different from the other three strategies.

The other strategies can be pursued with the same technical, financial and other resources that you already use for your existing product line. However, diversification requires new skills, a new knowledge base and maybe even new facilities. Another useful tool to help you decide whether and how to diversify, is the BCG Matrix.

Invented by the Boston Consulting Group, this matrix provides a visual way to look at your products with respect to:. Cash Cows are money makers. They generate more revenue for your business than you have to spend marketing them. Ideally, a business carries as many cash cows as possible.

Stars generate a lot of revenue but they also consume a lot of marketing dollars because they are growing so fast. Businesses should keep investing in stars until the growth rate flattens and they turn into cash cows. Dogs have a low market share and low growth rate. You could be losing money on them. It's wise to get rid of them and diversify into other product categories.

Diversification Strategy Definition | Types of Diversification Strategies

Question Marks have a high growth rate, but little market share. New product-market combinations that resulted from recent product diversification often fall into this category. Question mark products could turn into stars or dogs. To predict which, it helps to understand which way consumer trends are moving.

Optimally, your business has products in all four categories. This means that you're offering different products at different stages of their respective life cycles. Dogs are not really needed, but typically, they're former cash cows. As they wind down, they bear witness to a successful past. Diversification is usually necessary for survival and growth. But it's not wise to rush in.

Ideally, your core business is solidly established before you launch a new product or enter a new market.