Based on the discussion on Porter’s Generic Strategies, it is interesting how there are numbers of different strategies that could be followed by businesses in order to have market growth. Based on my own research, I stumbled upon the Ansoff Matrix, a business tool that could help develop a business strategy and it stood out because of its outline that is simple as well as vey comprehensible. However this post will only discuss its diversification strategy due to word limit as well as personal interest.
The Ansoff Matrix looks like the following.
Ansoff Matrix Source: http://dachpian2b.saschina.wikispaces.net/1.7.8+-+Ansoff+Matrix
Diversification refers to the high risk growth strategy that involves a business marketing new products in new markets. It is usually done in order to spread the risks of the business, in a way that if a product is not doing so well in the market, the other product could hopefully compensate the underperformance of the first product. It is also possible for business that have reached a plateau phase and would like to seek out new opportunities in new markets. However, as stated before, it is a high risk strategy because there’s always the possibility of that the business may not be familiar with the market they are entering. Diversification stood out for me due to the high risk it imposes. This strategy heavily depends on how the business could utilize its brand image in order to ensure the credibility of their new product.
Factors that count in when considering diversification are the company’s financial health, the cost of entering the market, the resource of work force from the company, and the access to distribution channels in the new market, and the regulatory issues regarding the decision (Reference for Business).
Brands such as *Starbucks have successfully diversify its products, however brands such as *Krispy Kreme may have not been so successful at it.
P.S. Apparently there is an article by the Harvard Business Review that has a more in-depth analysis on this matter, and it also has a similar title.
*=Links to articles regarding the brands I mentioned
Source:
http://www.referenceforbusiness.com/small/Di-Eq/Diversification.html