Binary option CHL: Diversification strategy marketing

Product Diversification Strategy.

A product diversification strategy can help your business grow.

Hemera Technologies/AbleStock/Getty Images.

More Articles.

[Market Development vs. Market Penetration] | Market Development vs. Market Penetration.

[Strategic Management] | Defensive Strategies in Strategic Management.

[Product Development Strategy Definition] | Product Development Strategy Definition.

[Product Development Strategy] | Examples of Product Development Strategy.

Diversification: Marketing and Growth Strategy - Marketing Essay Example.

I - Diversification: Marketing and Growth Strategy introduction. Introduction.

Strategies are very essential for every business organization in order to be successful - a diversification strategy entails increasing sales by introducing new products into new markets.. Often times, most companies view marketing trend to be one of the most important aspects in implementing their strategies since with an excellent marketing strategy, consumers are easily captured. Also, as strategic opportunities present themselves incessantly and which change as the years go by, a business organization may have more than one strategic opportunity at a time depending on its stability and profitability and its extent to take the risk of such opportunity.

essay sample on "Diversification: Marketing and Growth Strategy"

In this paper, the Ansoff’s Product-Market Growth Matrix will be delved into, specifically the four different growth strategies such as the market penetration, market development, product development and diversification. The first three growth strategies (market penetration, market development and product development) will be briefly defined, while diversification will be comprehensively discussed as a strategy/marketing tool or a corporate growth strategy. In the discussion of diversification, its definitions, kinds/classifications, and the companies which utilized this strategy tool and became successful will be cited.

II. Igor Ansoff and his Product-Market Growth Matrix.

H. Igor Ansoff was a Russian American, applied mathematician and business manager, and is known as the father of Strategic management. In 1957, Ansoff developed the Product-Market Growth Matrix, which was a tool he created to plot generic strategies for growing a business via existing or new products, in existing or new markets and as a method to classify options for business expansion (en. wikipedia. org/wiki/H._Igor_Ansoff). Through Ansoff’s Product-Market Growth Matrix, alternative corporate growth strategies were presented and that it focused on the company’s present and potential products and markets/customers. Ansoff model also considered the ways to grow through existing products and new products, and in existing markets and new markets, wherein there can be four possible product-market combinations. Below is an illustration of the traditional four-box grid or matrix of Ansoff model:

Based on Ansoff’s matrix, the four corporate growth strategies were formulated and formed, which are discussed as follows: a. With Market Penetration (existing markets, existing products), the company seeks to achieve growth with existing products in their current market segments, aiming to increase its market share. Among of the four strategies, market penetration strategy is the least risky since it merely relies on the company’s existing resources and capabilities and does not require much investment. With this strategy, the company takes the opportunity of increasing market share that will result in its growth, but has its limits once the market is already saturated, therefore another strategy must be applied if the company wants to continue to grow (quickmba/strategy/matrix/ansoff/). A company which decides to use market penetration as its strategy has the following main objectives: 1. Maintain or increase the market share of current products through a combination of competitive pricing strategies, advertising, sales promotion and resources dedicated to personal selling. 2. Secure dominance of growth markets.

3. Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors. 4. Increase usage by existing customers. For example by introducing loyalty schemes (tutor2u/business/strategy/ansoff_matrix. htm). Most companies use market penetration as its strategy, as they all want to achieve the abovementioned goals or objectives and considering that these companies are merely focused on their existing markets and products. b. The second growth strategy in the Ansoff’s Matrix is Market Development (new markets, existing products). This strategy aims to have additional market or geographical regions. When a business organization’s core competencies are more related to its specific product than to its experience with a specific market segment, then market development can be a good strategy. As compared with market penetration, market development has more risk (quickmba/strategy/matrix/ansoff/). The following are instances when companies can apply marketing penetration as a growth strategy: 1. New geographical markets; for example exporting the product to a new country.

2. New product dimensions or packaging.

3. New distribution channels (e. g. moving from selling via retail to selling using e-commerce and mail order). 4. Different pricing policies to attract different customers or create new market segments. (tutor2u/business/strategy/ansoff_matrix. htm). Companies with well-established names and brands, and with goodwill, which aim to introduce its products in a new market usually applies the market development growth strategy. c. The third growth strategy Product Development (existing markets, new products) is more applicable if the company considers its specific customers to be its strengths than its existing specific product, wherein the company may develop or innovate a new product targeted to its existing customers. Implementing this strategy may require the company to develop new competencies and modified products which are appealing to existing markets. This growth strategy has more risk on implementing it (quickmba/strategy/matrix/ansoff/). If the company would like to be differentiated in its product in order to remain competitive, then product development is suitable. With product development strategy, the marketing places emphasis on the following: 1. Research and development and innovation.

2. Detailed insights into customer needs and how they change 3. Being first to market the developed product. (tutor2u/business/strategy/ansoff_matrix. htm) The product development growth strategy is often applied with the auto markets where existing models are updated or replaced and then marketed to existing customers.

d. Finally, Diversification (new markets, new products) is the most risky among all of the growth strategies based on Ansoff’s matrix because it requires both product and market development, which may be outside the core competencies of the company, hence, this quadrant of the matrix has been referred to as the “suicide cell.” But diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return, or the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk (quickmba/strategy/matrix/ansoff/). Diversification has several different classifications and kinds which will be thoroughly discussed below.

When a company decides to adopt diversification as its growth strategy, there should be a clear idea on what it expects to gain and an honest and straightforward assessment of the risks to be taken. When the risk and reward are balanced, then diversification as a marketing/strategy tool can be highly rewarding (tutor2u/business/strategy/ansoff_matrix. htm) III. A Closer Look At Diversification.

As previously defined, diversification is used as a growth strategy when the company would like to expand by adding markets, products, services or stages of production to the existing business. One main purpose of diversification is to allow the company to enter lines of business that are different from its current operations. With this strategy then, the company may be required to acquire new skills, new techniques and new facilities (enotes/diversification-strategy reference/diversification-strategy). One of the primary reasons of adopting diversification as a growth strategy by a Company is to have a significant increase in performance objectives, usually in sales or market share, which is beyond the past historical levels of performance of the company. There is a notion by most investors and executives that the bigger the company is, the better, and that if sales increase, then there can also increase in profits (Ibid). Furthermore, many companies believe that business growth may improve the effectiveness of the organization, and that larger companies have a number of advantages over smaller firms operating in more limited markets, to wit:

1. Large size or large market share can lead to economies of scale. Marketing or production synergies may result from more efficient use of sales calls, reduced travel time, reduced changeover time, and longer production runs. 2. Learning and experience curve effects may produce lower costs as the firm gains experience in producing and distributing its product or service. Experience and large size may also lead to improved layout, gains in labor efficiency, redesign of products or production processes, or larger and more qualified staff departments (e. g., marketing research or research and development). 3. Lower average unit costs may result from a firm’s ability to spread 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. 4. 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 channels 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. 5. Sharing of information between units of a large firm allows knowledge gained in one business unit to be applied to problems being experienced in another unit. Especially for companies relying heavily on technology, the reduction of R&D costs and the time needed 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 transfer of information becomes. 6. 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 lowest cost. Smaller firms with only one location must operate within the strengths and weaknesses of its single location (Ibid). Diversification growth strategy has different kinds, classifications and forms according to different contexts, which are specifically discussed below:

a. Diversification in terms of increasing sales.

i. Concentric diversification is a kind of diversification when a company adds related products or markets. There is a technological similarity between the industries, wherein the company can leverage on its technical skills in order to gain some advantage, and that the new venture is strategically related to the existing line of business the company (en. wikipedia. org/wiki/Diversification_%28marketing_strategy%29). With this form of diversification, the company seeks new products that have technological or marketing synergies with existing product lines appealing to a new group of customers. Through this strategy, the company can tap part of the market which remains untapped, and which may bring opportunity to earn profits therefrom. There are many instances wherein companies used concentric diversification, such as the addition of tomato ketchup and sauce to existing Maggi brand, or the addition of cufflinks to the existing formal shirt clothing line (Ibid). ii. Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. Among the primary reasons for a conglomerate growth strategy is that the opportunities for a company’s current line of business are limited, therefore prompting the company to consider alternatives in other types of business (enotes/diversification-strategy reference/diversification-strategy).

Most companies apply conglomerate diversification strategy as a means of increasing their growth rate because this may make them more attractive to investors. A conglomerate growth may be considered effective if the new area has growth opportunities greater than those available in the existing line of business. On the other hand, the disadvantage of this strategy would be the increase in administrative problems associated with operating unrelated businesses, such competition between strategic business units for resources, or rivalry between and among the units (Ibid). A good example when conglomerate diversification strategy was applied is the case of Philip Morris’s acquisition of Miller Brewing. Products, markets, and production technologies of the brewery were quite different from those required to produce cigarettes. Also, since Philip Morris realized that there are no other opportunities for it to grow in its line of business, it decided to acquire a company with a different line of business (Ibid). b. Diversification whether internal or external.

i. There is Internal diversification when a company enters a different, but usually related, line of business by developing the new line of business itself, and which frequently involves expanding a company’s product or market base (Ibid). There can also different forms of internal diversification, such as to market existing products in new markets, broaden its geographic base to include new customers, either within its home country or in international markets, pursue an internal diversification strategy by finding new users for its current product, or use existing channels of distribution to market new products (Ibid). Companies which used internal diversification are Arm & Hammer marketed its baking soda as a refrigerator deodorizer, 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, etc. (Ibid). ii. On the other hand, External diversification occurs when a company looks outside of its current operations and buys access to new products or markets. Mergers and acquisitions are the most common forms of external diversification (Ibid). c. Diversification according to direction.

i. Vertical integration is applied when companies undertake operations at different stages of production, such as the steps that a product goes through in being transformed from raw materials to a finished product in the hands of the customer. Vertical integration is also usually related to existing operations and may also be considered concentric diversification. However, a disadvantage of vertical integration is that when demand for the product falls and essential supplies are not available, or a substitute product displaces the product in the marketplace, then the earnings of the entire company may suffer (Ibid). With vertical integration strategy, the company may also be following the backward vertical integration strategy, wherein a firm diversifies closer to the sources of raw materials in the stages of production. For instance, Avon adopted a backward form of vertical integration by entering into the production of some of its cosmetics, or in the case of St. Peter Chapels, it has its own casket manufacturing factory which exclusively supplies the caskets to the former. On the other hand, forward diversification occurs when companies move closer to the consumer in terms of the production stages. An example of this strategy is Levi Strauss & Co., which traditionally manufactures clothing, but has diversified forward by opening retail stores to market its textile products rather than producing them and selling them to another firm to retail (Ibid).

In relation with the abovementioned backward integration, this allows the company to exercise more control over the quality of the supplies being purchased, and which also may be undertaken to provide a more dependable source of needed raw materials. On the other hand, forward integration allows a manufacturing company to assure itself of an outlet for its products and to have more control over how its products are sold and serviced. Moreover, with forward integration, a company may be able to differentiate its products from those of its competitors and be able to control and train its own personnel selling and servicing equipment (Ibid). ii. On the other hand, Horizontal integration is applied when a company enters a new business (either related or unrelated) at the same stage of production as its current operations. An example of this integration is when Avon moved to market jewelry through its door-to-door sales force, which 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, plastic products) and through retail stores (e. g., Tiffany’s). In both cases, Avon is still at the retail stage of the production process (Ibid). IV. Successful Companies Using Diversification Growth Strategy.

a. Macintosh/Apple: Related/Concentric Diversification and Vertical Integration.

The Macintosh also known as Mac, is a line of personal computers (PCs) designed, developed, and marketed by Apple Inc. It is targeted mainly at the home, education, and creative professional markets. Apple Inc.’s then-chairman Steve Jobs introduced the Macintosh 128k on January 24, 1984. It became the Macintosh product line, and saw success through the end of the decade, though popularity dropped in the 1990s as the personal computer market shifted toward the “Wintel” platform: IBM PC compatible machines running MS-DOS and Microsoft Windows with an Intel processor (en. wikipedia. org/wiki/Macintosh). Production of the Mac is based on a vertical integration model. Apple facilitates all aspects of its hardware and creates its own operating system that is pre-installed on all Mac computers. Apple exclusively produces Mac hardware, choosing internal systems, designs, and prices (Ibid). Since the introduction of the Macintosh, Apple has struggled to gain a significant share of the personal computer market. At first, the Macintosh 128K suffered from a dearth of available software compared to IBM’s PC, resulting in disappointing sales in 1984 and 1985. It took 74 days for 50,000 units to sell (Ibid). In the mid 1990s, despite technical and commercial successes, Microsoft and Intel began to rapidly lower Apple’s market share with the introduction of the Windows 95 operating system and Pentium processors. Furthermore, Apple had created too many similar models that confused potential buyers. At one point, its product lineup was subdivided into Classic, LC, II, Quadra, Performa, and Centris models, with essentially the same computer being sold under a number of different names. These models competed against Macintosh clones, hardware manufactured by third-parties that ran Apple’s System.

7. This succeeded in increasing the Macintosh’s market share somewhat, and provided cheaper hardware for consumers, but hurt Apple financially as existing Apple customers began to buy cheaper clones while Apple shouldered the burden of developing the platform (Ibid). In 1998, upon the return of Steve Jobs, Apple consolidated its multiple consumer-level desktop models into the all-in-one iMac, which proved to be a sales success and saw the brand revitalized. At the turn of century, Apple then added the iPod, then the iPhone, and little over a year ago, the iPad. Over the past 10 years, Apple has gone from being a computer company to being a true consumer brand. This illustrates how Apple used the concentric/related diversification (royal. pingdom/2011/06/13/the-diversification-of-apple/). The chart below shows the growing and overall interest in Apple’s various product lines over the past eight years (2004-2011). (Source:royal. pingdom/2011/06/13/the-diversification-of-apple/) Apple has remained profitable since Steve Jobs’ return and the company’s subsequent reorganization. Notably, a report published in the first quarter of 2008 found that Apple had a 14% market share in the personal computer market in the US, including 66% of all computers over $1,000. Market research indicates that Apple draws its customer base from a higher-income demographic than the mainstream personal computer market. According to a recent Gartner report, Apple devices (Mac & iOS combined) are expected to outsell all Windows devices for the first time in 2013 (en. wikipedia. org/wiki/Macintosh).

Moreover, Apple in the past decade has established its own physical retail presence (as forward diversification), with its first retail store in 2001. Today there are more than 300 Apple Stores around the world. This gives Apple its very own retail chain where it can highlight products on its own terms as they are launched, not having to depend on other retailers or just selling online (royal. pingdom/2011/06/13/the-diversification-of-apple/).

b. The Walt Disney Company: Unrelated/Conglomerate Diversification The Walt Disney Company is an American diversified multinational mass media, which was founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio, and established itself as a leader in the American animation industry before diversifying into live-action film production, television, and travel. It is the largest media conglomerate in the world in terms of revenue. In 1986, it expanded its existing operations and also started divisions focused upon theater, radio, music, publishing, and online media. In addition, Disney has created new divisions of the company in order to market more mature content than it typically associates with its flagship family-oriented brands (en. wikipedia. org/wiki/The_Walt_Disney_Company). The Walt Disney Studios is best known for the products of its film studio, and it is one of the largest and best-known studios in Hollywood. Disney also owns and operates the ABC broadcast television network; cable television networks such as Disney Channel, ESPN, A+E Networks, LifeTime and ABC Family; publishing, merchandising, and theatre divisions; and owns and licenses 14 theme parks around the world. It also has a successful music division. The company has been a component of the Dow Jones Industrial Average since May 6, 1991 (Ibid). On July 18, 1955, Walt Disney opened Disneyland to the general public. After a shaky start, Disneyland continued to grow and attract visitors from across the country and around the world. The theme park design and architectural group became so integral to the Disney studio’s operations that the studio bought it on February 5, 1965 along with the WED Enterprises name (Ibid). V. Conclusion and Recommendation.

As discussed above, Ansoff’s Product-Market Growth Matrix can be a helpful strategy/marketing tool, specifically for companies whose objective is to increase its market share, its sales and revenues. The first three growth strategies (marketing penetration, market development and product development) are commonly applied by almost all companies these days since the risks with these strategies are not that high as long as there are strategic opportunities and the company is willing to take these.

On the other hand, diversification, as the fourth growth strategy, is considered as the most risky. Since this strategy is used when the company wants to introduce a new product in a new market (either by expand by adding markets, products, services or stages of production to the existing business, it entails that new skills, new techniques and new facilities should be applied and developed.

7 reasons diversification strategy is better in the long run.

Diversification strategy is observed when new products are introduced in a completely new market by the company. The strategy is loaded with hurdles because it requires a lot of investment and a lot of man power as well as focus of the top management. But still, in the long run, diversification strategy is one of the best growth strategy in the long run. Here are seven reasons for the support of diversification strategy.

1) You get more product variety – When diversifying your products, you are bound to do good research and development which results in introducing more variety and options of products in hand to capture the new market. With more product variety, you capture more customer attention and your brand receives a tremendous boost as well as the profitability of the company rises. Thus having more products is good for your business.

2) More markets are tapped – Your reach increases when you have more products and you need more markets to sell them. New products plus new markets is what defines the diversification strategy. More markets means your distribution increases and overall turnover increases. Although penetrating the markets involve a lot of cost and expenditure, once penetrated, the new market will bring regular profits, which is the goal of any business oriented company. Thus, the diversification strategy is a good market penetration strategy as well.

3) Companies gain more technological capability – With more R&D expenditure, it is likely that the company will develop technological capabilities. The goal of R&D is mostly technological advancement – bringing new and better products in the market. Thus, once you implement diversification strategy, you are bound to gain more technological capability for your company.

4) Economies of scale – Economies of scale comes in the picture when you are using same fixed Cost for more output. Whenever you are using the same factory to manufacture more number of products, naturally with advantage of economies of scale, your cost comes down and margins goes up. This is another advantage of diversification strategy.

5) Cross selling – Cross selling becomes more possible with the diversification strategy. You can introduce older products in the new market or introduce the new products in older and more mature market. An example in this case is LG which gives a large variety of products to end consumers and hence cross sells its own products.

6) Brand Equity – Because brand equity receives a substantial boost with more products and more presence in the market, your brand surges in brand recall as well as brand reach. This results in long term benefits for your brand. Perfect example in this case is Samsung. Samsung smart phones have created a tremendous boost for the Samsung brand, which has resulted in all of its products receiving a positive vibe because its Samsung.

7) Risk factor is reduced – Due to diversification strategy, and introduction of new products in new markets, your reliance on one single product or one single market is reduced and you begin to have advantage of more products and more markets to rely on. Thus, overall risk of the company is reduced.

All marketing experts say, that a business which does not keep adding new customers is bound to fail in the long run. At the same time, a company which does not expand at the right time is bound to lose a lot of its customers and market share. The diversification growth strategy helps the company expand in the right direction and manages risk for the company at the same time contributing to the bottom line. Thus, Diversification strategy is very beneficial for the company in the long run.

Binary option CHL

среда, 6 июня 2018 г.

Diversification strategy marketing

Комментариев нет:

Отправить комментарий

среда, 6 июня 2018 г.

Diversification strategy marketing

Комментариев нет:

Отправить комментарий

среда, 6 июня 2018 г.