Different Types Of Diversification Strategies Marketing Essay

Different Types Of variegation Strategies Marketing EssayExpanding a allot organisation can be quite hard so channel owners and their teams lam to use a variegation system to be adequate to add-on their gross sales and be successful in their blowup.The logical argument variegation scheme is what companies do (increasing the sales volume) in order to increase their pro survives.The increase in the volume of sales can be d single by develop spic-and-span harvest-tides and targeting rising marketplace. The variegation dodge can be utilize at the unit level of a stemma as salutary as in their corporate level. In a ac corporation expansion in unit level of a business, the schema can be a modernistic segment idea that is cerebrate exactly to the exist business. For the corporate level, the saucy business can be without relation to the alive business.Different Types of variegation StrategiesThere ar three basic types of diversification strategies that whitetho rn composed of several plans that range from the designed and development of refreshing products to the licensing of these new technologies. They whitethorn too be a combination of these plans with two or much of it holdd. They argon the coaxal diversification where the technology endure the same while its exchange plan alters significantly. The technical fill inl boundary is an edge when it comes to this type of dodge.The next ane is called plane diversification. In this type, the technology use is mosthow far from the exist business. Though the new products atomic number 18 non tie in to the existing sensations, the customers who are loyal still patronized the products. This is really effective when a business eat up many loyal customers. persist scarce non the least is the lateral diversification. This strategy is almost analogous to the horizontal diversification. The only thing that dissimilariates it from horizontal diversification is that later al strategy targets new customers instead of targeting their existing loyal customers.Diversifications Advantages and Dis returnssWhen using the business diversification strategy, you mustiness consider some things to succeed. Diversification can really benefactor businesses achieve its full potential in the market. It helps the society increase their customers by attracting new wholenesss and retaining loyal sensations. Further much, it enhances the product portfolio of the business by launching products which congratulate their existing products in the market. Nevertheless, the company must hire or take sufficient familiarity about diversification so that no trouble can arise in the future. The vigilance team of the company must be sanitary trained and educated about the processes that must be followed. Lack of in versionation and knowledge about the latest trend in the market can really be upsetting in your business goals. You must ensure that all are taken care of an d you prevail the capability and capability of handling those things. If not, hire someone who is a victor in this kind of situation.Types of DiversificationThe several(predicate) types of diversification strategies include the modernisation and development of new products, updating the market, new technology licensing, distribution of products by other company and even the alliance with the said company.The three types of diversification strategies include the concentric, horizontal and amass.Diversification is a method of danger worry that involves the channelise and implementation of dissimilar coronations stated in a specialised portfolio. This is practices be possess of the rationale that a portfolio containing a variety of investments can yield higher(prenominal)(prenominal)(prenominal) profits and serve as a lower risk to the independent investments in the same portfolio. It is only done investing much tighten that the benefits of diversification may be full y reaped. Investment finished unconnected securities may withal reap benefits because of the decreased correlation mingled with devolveical anaesthetic investments.The concentric diversifications specify that there exists similarities mingled with the industries in terms of the expert standpoint. It is through this that the dissolute may compare and apply its technological know how to an wages. This is through a careful change or alteration in the trade strategy performed by the business. This strategy aims to increase the market nurture of a particular product and therefore gain a higher profit.The horizontal diversification tackles products or operate that are in a sense, not related technologically to certain products but still injure the interest of authoritative customers. This strategy is more effective is the current concern is loyal to the existing products or services, and if the new additions are well priced and adequately promoted. The newest additions are marketed in the same appearance that the previous ones were which may cause instability. This is because the strategy increases the new products dependence on an existing one. This integrating unremarkably make outs when a new business is introduced, however unrelated to the existing.Conglomerate or lateral diversification is where the company or business promotes products or services with no relation commercially or technologically to the existing products or services, however still interest a number of customers. This type of diversification is unique to the current business and may prove quite risky. However, it may also prove very successful since it independently aims to improve on the profit the company accumulates with regards to the new product or service.At quantify there are certain defensive actions that may promote to the risk of contraction within the market, or that the current product market seems to have no more increment opportunities. This must also be cons idered in the beginning initiating a certain type of diversification strategy. Another factor is the import of the chosen diversification strategy. The expected emergence is expected to generate a profitability growth that will complement the ongoing activities within the company.Diversification strategies are utilize to refine fasts trading operations by adding markets, products, services, or stages of return to the existing business. The purpose of diversification is to allow the company to enter chores of business that are different from current operations. When the new venture is strategicalally related to the existing lines of business, it is called concentric diversification. Conglomerate diversification occurs when there is no universal thread of strategic fit or relationship between the new and old lines of business the new and old businesses are unrelated.variegation IN THE CONTEXT OF GROWTH STRATEGIESDiversification is a form of growth strategy. maturement strat egies involve a significant increase in mathematical operation objectives ( normally sales or market share) beyond past levels of performance. Many musical arrangements pursue one or more types of growth strategies. cardinal of the primary reasons is the view held by many investors and executives that bigger is unwrap. Growth in sales is ofttimes used as a measure of performance. Even if profits remain steadfast or decline, an increase in sales satisfies many people. The assumption is a good deal made that if sales increase, profits will at long last follow.Rewards for managers are usually greater when a firm is engage a growth strategy. Managers are often paid a commission based on sales. The higher the sales level, the full-grownr the compensation received. Recognition and business office also settle to managers of growing companies. They are more oft invited to speak to professional groups and are more often interviewed and written about by the press than are managers of companies with greater rates of return but slower rates of growth. Thus, growth companies also become better known and may be better able, to attract quality managers.Growth may also improve the military posture of the organization. Larger companies have a number of advantages over littler firms operational in more curb markets.Large size or openhanded market share can lead to economies of scale. Marketing or product synergies may result from more efficacious use of sales calls, lessen travel time, reduced changeover time, and longer output runs.Learning and father curve effects may produce lower costs as the firm gains live in producing and distributing its product or service. Experience and large size may also lead to improved layout, gains in wear out ability, redesign of products or production processes, or large and more suffice staff incisions (e.g., marketing research or research and development).Lower reasonable unit costs may result from a firms ability to deal administrative expenses and other overhead costs over a larger unit volume. The more capital intensive a business is, the more important its ability to spread costs across a large volume becomes.Improved linkages with other stages of production can also result from large size. Better links with suppliers may be attained through large orders, which may produce lower costs (quantity discounts), improved delivery, or custom-made products that would be unaffordable for smaller operations. Links with distribution take may lower costs by better location of warehouses, more efficient advertising, and shipping efficiencies. The size of the organization relative to its customers or suppliers influences its bargaining power and its ability to influence price and services provided.Sharing of information between units of a large firm allows knowledge gained in one business unit to be applied to problems universe come acrossd in other unit. particularly for companies relying heavi ly on technology, the reduction of RD costs and the time undeniable to develop new technology may give larger firms an advantage over smaller, more specialized firms. The more similar the activities are among units, the easier the rapture of information becomes.Taking advantage of geographic differences is possible for large firms. Especially for multinational firms, differences in wage rates, taxes, energy costs, shipping and freight charges, and trade restrictions influence the costs of business. A large firm can sometimes lower its cost of business by placing multiple plants in locations providing the terminal cost. Smaller firms with only one location must operate within the strengths and weaknesses of its single location.CONCENTRIC DIVERSIFICATIONConcentric diversification occurs when a firm adds related products or markets. The goal of such diversification is to achieve strategic fit. Strategic fit allows an organization to achieve synergy. In essence, synergy is the abilit y of two or more separate of an organization to achieve greater total effectiveness together than would be experienced if the efforts of the independent parts were summed. Synergy may be achieved by combining firms with complementary marketing, financial, operating, or management efforts. Breweries have been able to achieve marketing synergy through national advertising and distribution. By combining a number of regional breweries into a national network, beer producers have been able to produce and sell more beer than had independent regional breweries.Financial synergy may be obtained by combining a firm with strong financial resources but limited growth opportunities with a company having great market potential but weak financial resources. For example, debt-ridden companies may seek to acquire firms that are relatively debt-free to increase the lever-aged firms borrowing capacity. Similarly, firms sometimes attempt to stabilize shekels by diversifying into businesses with diff erent seasonal or cyclical sales patterns.Strategic fit in operations could result in synergy by the combination of operating units to improve overall efficiency. Combining two units so that reproduction equipment or research and development are eliminated would improve overall efficiency. measuring rod discounts through combined ordering would be another possible way to achieve operating synergy. Yet another way to improve efficiency is to diversify into an field of honor that can use by-products from existing operations. For example, breweries have been able to convert grain, a by-product of the fermentation process, into feed for livestock.Management synergy can be achieved when management experience and expertise is applied to different situations. Perhaps a managers experience in working with unions in one company could be applied to labor management problems in another company. Caution must be used, however, in assuming that management experience is universally transferable . Situations that appear similar may overtop significantly different management strategies. Personality clashes and other situational differences may make management synergy difficult to achieve. Although managerial skills and experience can be transferred, individual managers may not be able to make the transfer effectively.CONGLOMERATE DIVERSIFICATIONConglomerate diversification occurs when a firm diversifies into ambits that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification.One of the most vulgar reasons for pursuing a conglomerate growth strategy is that opportunities in a firms current line of business are limited. Finding an attractive investment opportunity requires the fir m to consider alternatives in other types of business. Philip Morriss acquisition of moth miller Brewing was a conglomerate move. Products, markets, and production technologies of the brewery were quite different from those necessary to produce cigarettes.Firms may also pursue a conglomerate diversification strategy as a means of increasing the firms growth rate. As discussed earlier, growth in sales may make the company more attractive to investors. Growth may also increase the power and prestige of the firms executives. Conglomerate growth may be effective if the new area has growth opportunities greater than those available in the existing line of business. in all probability the biggest disadvantage of a conglomerate diversification strategy is the increase in administrative problems associated with operating unrelated businesses. Managers from different divisions may have different backgrounds and may be unable to work together effectively. Competition between strategic busin ess units for resources may entail shifting resources away from one division to another. Such a move may create rival and administrative problems between the units.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. Without some knowledge of the new industry, a firm may be unable to accurately evaluate the industrys potential. Even if the new business is initially successful, problems will eventually occur. Executives from the conglomerate will have to become involved in the operations of the new enterprise at some point. Without adequate experience or skills (Management Synergy) the new business may become a poor performer.Without some form of strategic fit, the combined performance of the individual units will believably not exceed the performance of the units operating independently. In fact, combined performance may deteriorate because of controls p laced on the individual units by the resurrect conglomerate. Decision-making may become slower due to longer review periods and intricate reporting systems.DIVERSIFICATION GROW OR BUY?Diversification efforts may be either cozy or external. Internal diversification occurs when a firm enters a different, but usually related, line of business by developing the new line of business itself. Internal diversification frequently involves expanding a firms product or market base. External diversification may achieve the same result however, the company enters a new area of business by purchasing another company or business unit. Mergers and acquisitions are common forms of external diversification.INTERNAL DIVERSIFICATION.One form of congenital diversification is to market existing products in new markets. A firm may elect to broaden its geographic base to include new customers, either within its home country or in world(prenominal) markets. A business could also pursue an internal dive rsification strategy by finding new users for its current product. For example, Arm Hammer marketed its bake soda as a refrigerator deodorizer. Finally, firms may attempt to change markets by increasing or decreasing the price of products to make them attract to consumers of different income levels.Another form of internal diversification is to market new products in existing markets. Generally this strategy involves using existing channels of distribution to market new products. Retailers often change product lines to include new items that appear to have good market potential. Johnson Johnson added a line of baby toys to its existing line of items for infants. Packaged-food firms have added salt-free or low-calorie options to existing product lines.It is also possible to have conglomerate growth through internal diversification. This strategy would entail marketing new and unrelated products to new markets. This strategy is the least used among the internal diversification str ategies, as it is the most risky. It requires the company to enter a new market where it is not established. The firm is also developing and introducing a new product. Research and development costs, as well as advertising costs, will likely be higher than if existing products were marketed. In effect, the investment and the probability of failure are much greater when both the product and market are new.EXTERNAL DIVERSIFICATION.External diversification occurs when a firm looks outside of its current operations and buys access to new products or markets. Mergers are one common form of external diversification. Mergers occur when two or more firms combine operations to form one corporation, perhaps with a new name. These firms are usually of similar size. One goal of a nuclear fusion is to achieve management synergy by creating a stronger management team. This can be achieved in a merger by combining the management teams from the merged firms.Acquisitions, a second form of external growth, occur when the purchased corporation loses its identity. The acquiring company absorbs it. The acquired company and its assets may be absorbed into an existing business unit or remain intact as an independent subsidiary within the parent company. Acquisitions usually occur when a larger firm purchases a smaller company. Acquisitions are called friendly if the firm being purchased is receptive to the acquisition. (Mergers are usually friendly.) incompatible mergers or hostile takeovers occur when the management of the firm targeted for acquisition resists being purchased.DIVERSIFICATION VERTICAL OR HORIZONTAL?Diversification strategies can also be classified by the direction of the diversification. tumid integrating occurs when firms approach operations at different stages of production. Involvement in the different stages of production can be developed inside the company (internal diversification) or by acquiring another firm (external diversification). Horizontal integr ation or diversification involves the firm moving into operations at the same stage of production. Vertical integration is usually related to existing operations and would be considered concentric diversification. Horizontal integration can be either a concentric or a conglomerate form of diversification.VERTICAL INTEGRATION.The steps that a product goes through in being transformed from raw materials to a finished product in the possession of the customer constitute the mingled stages of production. When a firm diversifies surrounding(prenominal) to the sources of raw materials in the stages of production, it is following a backward vertical integration strategy. Avons primary line of business has been the selling of cosmetics door-to-door. Avon pursued a backward form of vertical integration by entering into the production of some of its cosmetics. Forward diversification occurs when firms move closer to the consumer in terms of the production stages. Levi Strauss Co., traditio nally a manufacturer of clothing, has modify frontward by opening retail stores to market its textile products sooner than producing them and selling them to another firm to retail.Backward integration allows the diversifying firm to exercise more control over the quality of the supplies being purchased. Backward integration also may be undertaken to provide a more right source of needed raw materials. Forward integration allows a manufacturing company to assure itself of an outlet for its products. Forward integration also allows a firm more control over how its products are sold and serviced. Furthermore, a company may be better able to differentiate its products from those of its competitors by forward integration. By opening its own retail outlets, a firm is often better able to control and train the personnel selling and inspection and repair its equipment.Since servicing is an important part of many products, having an excellent service department may provide an coordinat ed firm a competitive advantage over firms that are strictly manufacturers.Some firms employ vertical integration strategies to eliminate the profits of the middleman. Firms are sometimes able to efficiently bunk the tasks being performed by the middleman (wholesalers, retailers) and receive additional profits. However, middlemen receive their income by being competent at providing a service. Unless a firm is evenly efficient in providing that service, the firm will have a smaller profit margin than the middleman. If a firm is too inefficient, customers may reject to work with the firm, resulting in lost sales.Vertical integration strategies have one major disadvantage. A vertically integrated firm places all of its orchis in one basket. If demand for the product falls, essential supplies are not available, or a substitute product displaces the product in the marketplace, the earnings of the entire organization may suffer.HORIZONTAL DIVERSIFICATION.Horizontal integration occurs when a firm enters a new business (either related or unrelated) at the same stage of production as its current operations. For example, Avons move to market jewelry through its door-to-door sales force involved marketing new products through existing channels of distribution. An alternative form of horizontal integration that Avon has also undertaken is selling its products by mail order (e.g., clothing, malleable products) and through retail stores (e.g., Tiffanys). In both cases, Avon is still at the retail stage of the production process.DIVERSIFICATION STRATEGY AND MANAGEMENT TEAMSAs attested in a study by Marlin, Lamont, and Geiger, ensuring a firms diversification strategy is well matched to the strengths of its top management team members factored into the success of that strategy. For example, the success of a merger may depend not only on how integrated the joining firms become, but also on how well suited top executives are to manage that effort. The study also suggests t hat different diversification strategies (concentric vs. conglomerate) require different skills on the part of a companys top managers, and that the factors should be taken into consideration before firms are joined.There are many reasons for pursuing a diversification strategy, but most pertain to managements desire for the organization to grow. Companies must decide whether they want to diversify by going into related or unrelated businesses. They must then decide whether they want to expand by developing the new business or by acquire an ongoing business. Finally, management must decide at what stage in the production process they wish to diversify.FURTHER READINGAmit, R., and J. Livnat. A invention of Conglomerate Diversification. Academy of Management Journal 28 (1988) 59304.Homburg, C., H. Krohmer, and J. Workman. Strategic Consensus and mathematical operation The Role of dodging Type and Market-Related Dynamism. Strategic Management Journal 20, 33958.Luxenber, Stan. Diver sification Strategy Raises Doubts. National Real Estate Investor, February 2004.Lyon, D.W., and W.J. Ferrier. Enhancing Performance With Product-Market Innovation The decide of the Top Management Team. Journal of Managerial Issues 14 (2002) 45269.Marlin, Dan, Bruce T. Lamont, and Scott W. Geiger. Diversification Strategy and Top Management Team Fit. Journal of Managerial Issues, Fall 2004, 361.Munk, N. How Levis Trashed a Great American Brand. Fortune, 12 April 1999, 830.St. John, C., and J. Harrison, Manufacturing-Based Relatedness, Synergy, and Coordination. Strategic Management Journal 20 (1999) 12945.