What are the types of diversification strategies?
Diversification strategies allow the company to expand their product lines and work on several different economic markets. Among the most common strategies are concentric, horizontal and conglomerate diversification. Each strategy focuses on a specific diversification method. The first strategy is used when the company wants to expand its product line to include similar products produced in the same company, the second is used when the company wants to produce unrelated products that attract a similar market, the last one is used when the company expands in two or more unrelated industries. Diversification strategy helps companies to increase their flexibility and maintain profit during slow economic periods.
Concentric diversification strategy allows companies to add similar products to a successful business range. For example, a computer manufacturer that produces personal computers using towers begins to produce portable computers. Technical knowledgeThe Necessary to fulfill the new task comes from its current area of qualified employees. Concentric diversification strategies also exist in other industries such as food industry. The ketchup manufacturer may choose to produce salsa using its current - and very similar - production facilities for the task.
horizontal strategies allow the company to start moving outside their comfort zone in terms of product production. Companies use their current market share of loyal customers with products that have a small or no relation to the products currently sold. Television manufacturer can begin to produce white goods such as refrigerators, freezers and pads or dryers. The disadvantage of horizontal diversification strategy may be the dependence of society on one group of consumers. The company will tend to place products on the market to current consumers using loyalBrands associated with current products. This is dangerous if new products do not gain the same kindness as the older products of the company.
When companies involve the diversification of conglomerate, they often try to enter the previously unused market. Companies can do this by purchasing or merging with another company in the required industry. The transition to a completely unrelated industry is often very dangerous because the current management of the company is not unknown to the new industry. Brand loyalty can also be reduced if the new administration does not maintain the current product quality. The rise of this diversification strategy comes from increasing flexibility and achieving new economic markets. For example, a company that produces parts for car repairs can enter the toy industry. Each company in these industries allows a wider range of customers and the ability to diversify opportunities for reception when the sale of one industry and the other does not.