Diversification implies business measures that allow companies to have additional products or services. The added products act as conditions that improve on the dynamics of a business and strengthen the competition. Successful implementation of diversification requires intense market knowledge and pre-assessments of the business with its environs (Hoskisson and Hoskisson, 2008). Discussed below are the different types of diversification, how they add to the competitive package of a business and real examples of how they can be applied.
(i) Horizontal Diversification.
This involves acquisition of new products or services that appeal to the current groups of customers by improving on the technology involved in the production. This boosts the competitive advantage of the business since the customers are held in the products of the business. It also leads to additional customers whose interests are on uniqueness of products (Hoskisson and Hoskisson, 2008). For example, the introduction of different types of juice blends by the Apple & Eve Company in year 2000. This made the company more appealing to its customers and led to introduction of new customer. The company overcame most of its competitors due to the introduction of this strategy.
(ii) Vertical Diversification.
This occurs when a business goes back to its initial stages of production, or moves forward to improve on the same cycle, either by production or distribution process (Hoskisson and Hoskisson, 2008). For example, a water distribution company selling various water treatment chemicals. This means that customers who use the water would be interested in treating the same. Once the consumers buy the water, they still go for the treatments. This ensures that the business becomes a one stop shop for the water users thus stiffening the competition from other parties dealing with the same product.
(iii) Concentric Diversification.
This is enlarging the production assortment by adding new products or services. The aim of adding new products in this case is to fully utilize the existing technology and add on the competitive factor in the market system. Concentric diversification is more beneficial compared to the other types of diversification since the business benefits from more synergies (Hoskisson and Hoskisson, 2008). A real life example was the introduction of office equipment, surveying equipment, commercial care products among others in the famous K.B. Sarkar & Co. this diversified business in the company due to the variety of services which led to the expansion of the company. The company is known for its variety, which makes most customers prefer the services.
(iv) Conglomerate or Heterogeneous Diversification.
This involves a movement in producing new products or services that are not related, in any way, with the existing technology, commercialization or distribution process. The aim of this strategy is to improve on returns of the business and increase opportunities in development of the company (Hoskisson and Hoskisson, 2008). Such may include opportunities for partnerships, accessibility to new technology and acquisition of new customers. An example may be that of a Software company introducing beverages. In such a case, the company may develop partnerships with beverage producing companies, whereby they learn the new technologies of production and, in addition provide new software for marketing and development of new beverages. This promotes variety in production which leads to more customers hence growth
(v) Corporate Diversification.
This is closely related to heterogeneous diversification whereby there is an acquisition of new and unrelated production (Hoskisson and Hoskisson, 2008). However, in this case the production involves large investments, which have high expectations on return on investments. An example may include a financial institution introducing postal deliveries. Many customers enjoy banking services but lack delivery services. The introduction of such services would, therefore, mean satisfaction from the existing and new customers. This would boost the competitive advantage of the business in relation to just performing financial tasks.
Hoskisson, R. E., & Hoskisson, R. E. (2008). Competing for advantage. Mason, OH: Thompson/South-Western.