Question

Diversification is the process of firms expanding their operations by entering new businesses. As a strategist, critically discuss some of the various means that firms can use to diversify. What are the Advantages and disadvantages associated with each of these? Support your answer with examples.

Answer 1

Diversification is a strategic approach in which business may target different segments of customers simultaneously . It can be done through various methods. One method can be

1) Launching different types of products into a market place

For example, P& G launches various FMCG products across the global markets.

Advantages : In this more sales turnover and profit can be earned by catering huge geographical regions. Even , it provides edge when a product will be in loss then second may be offered huge profit margin and revenue. Customers of different types can be served .

Disadvantages:

Some times, companies get diverted from its core competencies or strengths of a particular expertise. When , a company offers a range of products and services then it requires huge investment, manpower, global supply chain, strong compliances etc. otherwise due to focus on several offerings, problem of a particular product division may get worsened or not possible to resolve .

Second method can be ,

2) Launching different variants to same products :

For example, Apple is offering different i-phones in same series that i- series. Samsung has Galaxy series , A series , M series etc.

Advantages :

It offered focus on unique segment. It provides an opportunity or  chance so as to improve the shortcomings of previous brands.

Disadvantages:

Customers may suggest very different points and suggestions to other prospective customers. A particular product may get more response than coming one or previous product offerings. It is suitable for branded products targeting a specific segment. Limited profits and more expenses on advertising campaigns may be occurred due to need of boosting sales.