Is diversification the right route for your business?

Take a moment to contemplate what your business does. Now think about what your competitors do. Finally, consider your customers’ desires. Do you deliver what they need? If so, how long before you become irrelevant, like these brands? One way to survive, meet demand and strengthen your business is to diversify.

Diversification happens whenever your business expands its operations, enters new markets, or varies its products to stand out in the marketplace. As businesses are forever changing to meet the demand of consumers. If your business is growing stagnant, diversifying might be the answer. Rob Elsmore of Oxbridge Home Learning shares some pros and cons on the process:

3 advantages of diversification 

Rob Elsmore, Oxbridge Home Learning

1) Brand extension

Through branching into new markets or launching new products, you can increase your brand’s reach, growth, financial prospects, and share of the marketplace. The point is to add value, complement USPs, or supplement business areas that are lacking.

For example, a clever extension is Mars’ frozen confectionary range, turning favourites like Snickers into ice-cream bars. Also effective is our course offerings at Oxbridge Home Learning. We don’t throw any course online, it takes careful research to identify what consumers want.

2) One-stop shop

Consumers are fickle beings. One minute they’re advocating your brand, the next, they’re shopping with rivals offering something you don’t. By diversifying, you can boost your business’s reach by incorporating services or products ideal customers might need in one place.

Swedish brand IKEA is a fantastic example of one-stop shopping for furniture. Laid out like a museum, you’ll get lost in its halls offering everything you need to build a home from the inside out. They’ve even expanded to satisfy post-shopping hunger with cost-effective, on-site restaurants and mini-marts.

3) The halo effect

When customers value your products or services, they’re more likely to invest in future launches because they’ll have developed an affinity for your brand. For example, when Apple released the iPhone, Mac owners, already sold on Apple’s quality, needed little convincing to purchase. This is the halo effect, which can greatly impact businesses offering diverse product ranges.

3 Disadvantages of diversification

1) Lack of expertise

While expanding into new areas is exciting, it’s also risky business, especially if you’re unprepared or lack the knowledge and experience to manage your new products, services or assets. Just because you’re a specialist in one area doesn’t mean you’ll champion another. So, when choosing to diversify, concentrate on areas closely related to what your company does to stay sharp, steadily grow and minimise risk.

2) Oversaturation

Too much diversity can degrade your brand. We’re talking unnecessary products that don’t add value or confuse customers. For example, when motorcycle brand Harley Davidson released a cake decorating kit on unsuspecting fans, it was met with disdain.

Diversification should complement existing products or satisfy customers. When entering new markets, you can lose sight of what makes you unique. So, keep things simple, manageable and relevant to your clientele to maintain trust, happiness and avoid the negative impacts of loss: custom, profits, integrity.

3) Resource allocation

Diversifying drains resources: time, money, effort, which can damage a business if mismanaged. It’s okay to be ambitious, but you risk burning out or neglecting areas of your organisation when you expand into new directions. To avoid this, allocate resources and attention to all business operations, new and old.

Preparation is everything

Whether you’re an SME or a multinational, as society advances and attitudes change, businesses need to adapt to survive. You may cushy today, but 20 years from now, the Netflix of your sector might be there to snatch the carpet from beneath your feet. All we’re suggesting is keeping an eye on the market around you, then if there comes a time when you need to diversify, you’ll be fully prepared.