Diversification Strategy (With Real World Examples) | From A Business Professor
How does horizontal diversification work?
In order to fill a product need that does not already exist in a company’s product line, horizontal diversification seeks to create a new product. A business may conduct market research by asking for customer feedback, observing consumer behavior, or examining sales performance for various products they offer to identify potential areas where they might need to engage in horizontal diversification. The employees of that company can decide which products they might start producing and selling to customers either within current product lines or in new product lines by conducting research about where horizontal diversification can help.
What is horizontal diversification?
A technique for product diversification known as “horizontal diversification” involves adding new products to a company’s line that are intended to serve current customers. A business that chooses to employ horizontal diversification may decide to add items to one of its current product lines that are unrelated to the other items in the line. By providing them with new ways to satisfy their needs, this can enable new products to appeal to customers who already make purchases from a business. Additionally, horizontal diversification may entail developing new product lines that offer goods that are distinct from earlier product lines.
Benefits of horizontal diversification
Here are some common benefits to horizontal diversification:
Product line growth
Growing a company’s product lines is one obvious advantage of horizontal diversification. Horizontal diversification can lead to product lines being expanded and becoming more complete and varied because it frequently entails adding new products to existing lines in an effort to better serve current customers. Adding new products that customers are likely to use can help a company perform better by increasing the likelihood that returning customers will buy more from them. This could lead to more sales overall, which would raise revenue.
Increased opportunities for promotion
A company has more opportunities to market itself and its products when it expands its product lines, a process known as horizontal diversification. When a business introduces new products, it usually involves putting in place some kind of marketing plan that can inform potential customers about the products’ existence, uses, and defining characteristics.
Ads that promote a company’s new products as well as the company itself may be produced and distributed as a result of engaging in new marketing initiatives. This is due to the fact that any advertisement for a company’s product will almost certainly also mention the company, giving the latter publicity and possibly luring in more customers.
Ability to serve more customers
By developing products that meet their needs that a company does not currently satisfy, horizontal diversification frequently aims to satisfy existing customers. However, it can also enable an increase in new customers visiting a business. Even if a product is initially developed in the interest of current customers, because horizontal diversification revolves around introducing new products to a market, there is frequently the opportunity to draw in new customers through advertising and promotional activities. By increasing their customer base, a business can increase sales, which can lead to an increase in revenue and a stable financial position.
Improved product quality
Horizontal diversification can help a business increase the caliber of its products because it forces businesses to assess their current product lines to determine where they might need to add new products. This can happen whenever a business reviews the products it sells because it has the chance to identify any elements of current products that could use updates or improvements as it searches for opportunities to introduce new products. By ensuring customer satisfaction, which may encourage future purchases, a company can increase revenue by improving the quality of its products.
Horizontal diversification examples
Here are a few examples of horizontal diversification:
Dental health supplies
A business produces and offers individual customers dental hygiene products like toothbrushes and floss. They decide to expand their current dental care lines after noticing a sales plateau for a while. The business decides to add two flavors of toothpaste to their dental health line even though they already sell three different toothbrush styles and two different types of floss. Since toothpaste is entirely different from toothbrushes or floss but still serves the same customer base as a dental hygiene product, this is an example of horizontal diversification.
Clothing line
A retail business creates its own line of clothing and sells it in stores. When the quarter is over, they notice consistent sales but decide that they can boost their earnings by introducing new items to their current clothing lines. The company decides to add a few styles of shoes to their line so that customers can match them with the clothing they sell because they already sell several styles of shirts, bottoms, and dresses.
This is an example of horizontal diversification because shoes are a different product than shirts, bottoms, or dresses, and the same customers who buy the company’s clothing may be inclined to also buy shoes from their stores.
Food and beverages
Although a food and beverage company sells a variety of grocery items under various lines, its dairy-free milk beverage line, which includes drinks made from soy, oat, and almond milk, appears to be its best-selling product. The business concludes that although sales of their dairy-free beverage line have increased, those of their other dairy products made with dairy milk have decreased. So that the line of dairy-free products offers more than just beverages, the company decides to add dairy-free cheese to it.
Because cheese is a different product from milk but customers who buy dairy-free milk might also choose to buy dairy-free cheese, this is another example of horizontal diversification.
FAQ
What is the difference between horizontal and concentric diversification?
In horizontal diversification, a firm adds new products. While in vertical diversification, a company adds supply chain components, such as suppliers, carriers, etc.
What company uses horizontal diversification?
When a business wants to expand its product line to include related goods made by the same business, it uses the concentric strategy; when it wants to produce new goods in a related market, it uses the horizontal strategy; and when it wants to diversify through conglomerates, it uses the conglomerate diversification strategy.
Why is horizontal diversification important?
Reliance Industries Limited (RIL) is among the most well-known instances of horizontal diversification. The company was a megabrand for textile and petrochemical products earlier, between 1960 and 1980. But in 1995–1996 they went into the telecom business, which was entirely unrelated to their prior endeavor.
