Diversification is a strategy for growth through branching out into a new market segment, allowing your business to expand its presence and occupy a totally new space . This is achieved through expanding (or diversifying) your product or service offering to target new customers and grow profits.
What are the reasons for diversification?
- You get more product variety.
- More markets are tapped.
- Companies gain more technological capability.
- Economies of scale.
- Cross selling.
- Brand Equity.
- Risk factor is reduced.
What is diversification and its types?
Diversification is a corporate strategy to enter into a new products or product lines , new services or new markets, involving substantially different skills, technology and knowledge. Diversification is one of the four main growth strategies defined by Igor Ansoff in the Ansoff Matrix: Products. Present. New.
What is diversification explain in detail about different types of diversification with an example?
Concentric Diversification – Concentric diversification focuses on adding products and services that are related to the main product or service that the business is known for offering , typically using the same production tools or technology tools. An example might be a pizza company branching out to offer calzones.
What are the types of diversification and when are they used?
- Concentric diversification. Concentric diversification involves adding similar products or services to the existing business. ...
- Horizontal diversification. Horizontal diversification involves providing new and unrelated products or services to existing consumers. ...
- Conglomerate diversification.
What is an example of diversification?
For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks. ... Another strategy is conglomerate diversification. If a company is expanding into industries that are unrelated to its current business, then it’s engaging in conglomerate diversification.
What is diversification and its advantages?
Three key advantages of diversification include: Minimising risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment.
What is the main advantage of diversification?
When you invest in a mix of different types of investments, you are diversifying. Diversification means lowering your risk by spreading money across and within different asset classes , such as stocks, bonds and cash. It’s one of the best ways to weather market ups and downs and maintain the potential for growth.
What is meant by diversification?
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio . ... The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.
Is diversification a good strategy?
Diversification can help an investor manage risk and reduce the volatility of an asset’s price movements . ... You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock and so it is also important to diversify among different asset classes.
What are the four methods of diversification?
- Horizontal diversification.
- Vertical diversification.
- Concentric diversification.
- Conglomerate diversification.
- Defensive diversification.
- Offensive diversification.
What are the features of diversification?
Let’s identify three characteristics of a diversified portfolio: A mix and a variety of asset classes . Diversified portfolios use a blend of equities (stocks), fixed income (bonds), cash and cash equivalents (U.S. Government Treasury Bills), real estate and commodities (metals and energy).
What is product diversification with example?
Product Diversification Techniques
The manner in which a product is presented can be altered to make it available to a different audience . For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles.
What is the meaning of diversification strategy?
Diversification is a growth strategy that involves entering into a new market or industry – one that your business doesn’t currently operate in – while also creating a new product for that new market.
What is divestiture strategy?
Sale. One divestiture strategy involves the sale of the subsidiary or business line to another company . The parent company decides that it no longer serves as the best owner of that portion of the business. ... Sometimes unsolicited buyers will approach to buy the subsidiary.
What is the best example of diversification?
Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification.
