Induction
Type of diversification of strategy with example for businesses looking to expand their operations and mitigate risks. By entering new markets or offering new products or services, companies can reduce their dependence on a single market or product, thereby spreading risk and potentially increasing profitability. In this blog post, we’ll explore different types of diversification strategies, along with examples to illustrate each one.
1. Related Diversification
Related diversification involves entering new markets or offering new products or services that are related to the company’s existing business. This type of diversification of strategy with example leverages the company’s core competencies, resources, and capabilities to create synergies and gain competitive advantages.
Example: Samsung’s expansion from consumer electronics into the home appliance market is an example of related diversification. Leveraging its expertise in technology and manufacturing, Samsung introduced products like refrigerators, washing machines, and air conditioners, which complement its existing portfolio of electronics.
2. Unrelated Diversification
Unrelated diversification involves entering new markets or offering new products or services that have little or no connection to the company’s existing business. This strategy allows companies to spread risk across different industries and capitalize on new opportunities outside their core competencies.
Example: General Electric’s diversification into financial services with the creation of GE Capital is a classic example of unrelated diversification. Despite being primarily known as an industrial conglomerate, GE successfully expanded into areas such as banking, insurance, and leasing, diversifying its revenue streams and reducing its reliance on manufacturing.
3. Horizontal Diversification
Horizontal diversification involves expanding into new markets or offering new products or services that are directly related to the company’s existing business but target different customer segments. This strategy allows companies to leverage their brand reputation, distribution channels, and operational efficiencies to capture additional market share.
Example: McDonald’s introduction of McCafé, its line of coffee-based beverages, is an example of horizontal diversification. While McDonald’s is primarily known for its fast-food offerings, McCafé allowed the company to attract customers looking for specialty coffee drinks, thereby expanding its customer base and increasing sales.
4. Vertical Diversification
Vertical diversification involves expanding into upstream or downstream stages of the value chain. This strategy allows companies to gain more control over their supply chain, reduce costs, and improve efficiency by integrating processes that were previously outsourced or controlled by external parties.
Example: Tesla’s acquisition of SolarCity, a solar energy company, represents vertical diversification. By integrating solar energy production with its electric vehicle business, Tesla aims to create synergies between renewable energy generation and electric vehicle charging infrastructure, offering customers a holistic solution for sustainable transportation.
Conclusion
Diversification is a powerful strategy for businesses seeking growth and risk mitigation. Whether through related or unrelated diversification, horizontal or vertical integration, companies can unlock new opportunities, strengthen their competitive position, and create value for shareholders. However, successful diversification requires careful planning, strategic execution, and a thorough understanding of market dynamics. By leveraging the right diversification strategy, businesses can navigate uncertain environments and thrive in an ever-changing landscape.
https://ediify.com/types-of-diversification-strategy-a-comprehensive-overview/
https://pressbooks.lib.vt.edu/strategicmanagement/chapter/8-3-diversification/
