Product development
- Product modification
- Product extension
- Product expansion
Product modification
Small, evolutionary modifications of existing products in terms of quality, function or style
Product extension
Extending a successful brand to similar but different products that might be purchased by the same customers
Product expansion
Developing product variations that meet the needs of different market segments
Diversification
The strategy of expanding the company’s range of products or markets.
This expansion can be in terms of introducing new products or services, entering into new markets or industries or a combination of both.
Diversification goal
Reduce risk by spreading the company’s interests across different areas so that it is not overly dependent on a single product line or market
Key reasons for diversification
- Escape from fluctuations
- Escape from declining or stagnant industries
- Risk reduction
- Move into more profitable industries
- Synergetic reasons
- Ambidexterity
Conglomerates
Diversified companies spread risk across different industries. Investors in public companies can do this themselves in “efficient” markets
Sources of economies of scope
- Tangible assets & Related fixed costs are spread across more products/services
- Intangible assets (e.g. brands) can be profitably extended across more products/services
- Organizational capabilities can be extended across more products/services
Growth stalls
Successful companies lose momentum for four main reasons. All are within management’s control if spotted in time.
Causes of Growth Stalls
- Premium position backfires (strategy and successful strategies)
- Innovation Management breaks down
- Core business is abandoned prematurely
- Company lacks a strong talent bench
Successful strategies
- Strategy should emphasize something that makes you as unique as possible and delivers as much value as possible to the customer. - The best chance of doing this comes from differentiation with the aim of dominating your market and to do this effectively and quickly.
- Then to continue to innovate based upon your differential advantage.
Strategy implications (diversity)
- Identify & reinforce through marketing, particularly branding, elements of differentiation that are important to customers
- Build product/service development & innovation on differential advantages
- If part of a niche strategy, have clear understanding of customer needs & react quickly to changes
