By Linda Forrest
A few weeks ago, as I trundled through a sparsely populated HMV, a retailer that’s rumoured to be on its way out of Canada (if not about to shuffle off this mortal coil altogether), I couldn’t help but wonder if its acronym still stood for His Master’s Voice or if its meaning had shifted and now accounts for the hats, mugs and video games that have overtaken shelf space once devoted to recorded music.
The case of HMV makes me think of diversification as a marketing strategy. Wikipedia defines diversification in this usage, rather than its other recognised definition as a financial investment strategy, as “a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, it is generally…very interesting entering a promising business outside of the scope of the existing business unit.”
When does it make sense to branch out? How can your company go about determining if and when diversification is the right approach for you? Marketing experts can provide you with strategic counsel on your particular scenario, but there are some tried and true considerations that must be truthfully answered to determine whether this is a successful evolution of your brand or a desperate move to increase revenues by trying to be all things to all people. Diversification is a risk, but it can be a calculated one.
Are you diversifying for the right reasons? Walking through an HMV, I couldn’t help but feel the desperation behind the decision to bring in Sex and the City coffee mugs and Pilate’s water bottles and floor mats. Rather than expanding into the clothing, book and housewares markets by design, this has the stench of a dying company desperately trying to capture any revenue it can.
What are the right reasons to diversify? To answer this, let’s see what we can glean by looking at companies that have successfully diversified and why.
The Walt Disney Company is a prime example. Started as an animation studio, the company has since become an entertainment powerhouse that pervades film, television, radio, vacation destinations, merchandise, music, cruise ships and more.
Why did the company diversify its offering? After World War Two, when demand for its film-making services that had been used heavily by the U.S. government during the war effort waned, the company, driven by financial motivation, expanded its footprint into other integrated market segments. This approach not only hedged the company’s bets insofar as financial success was concerned, but tied the offerings together, reinforcing the company’s already strong brand across seemingly disparate market segments.
This example offers several takeaways including a good reason to diversify and a best-practices approach that can give your new venture the best chance of success.
Reasons to diversify
Financial motivations: Let’s face it – businesses operate in order to make money. But why are you seeking a new revenue stream? There’s a marked difference between a move made in desperation and a strategic realignment; answer honestly in what category you belong and regardless of the answer, having a cohesive strategy in place will better your chances of success.
Untapped expertise: Many of us have changed jobs throughout our careers, just how many and how frequently is the subject of pervasive yet unsubstantiated myth, and so we likely have a surfeit of talents that we’re not necessarily putting to good use. This can especially be the case when our various jobs have been within the same field. As such, diversification can offer an exciting challenge and an opportunity to flex underutilized muscles in a real-world scenario.
Market shift: If your offering is in need of updating, if your market has shifted such that the business case for your product or service no longer resonates with your target market, or if you spot a market need that’s not currently being met, diversification might be for you.
Best practices approach to diversification
Integration: A classic Simpsons episode made a lasting impression on me with its hilarious sight gag of a poorly thought out snack mix that read, “Nuts and gum: together at last!” It’s appropriate here. Diversification needs to be thoroughly considered and the new product segments need to be complimentary in a logical fashion. It’s rare that a business that brings together wildly disparate offerings will succeed. Take a page from Disney here and ensure that what on the surface may seem very different – cruise ships and children’s cartoons? – are in fact both part of a cohesive strategy.
Planning: Look before you leap. It takes time to assess potential markets – vertical and geographic – but, in the case of technology, the market opportunity exists within a constrained window of time. Know what you’re getting into, do comprehensive strategic analysis before going to market, but recognise your market opportunity and the time frame that exists.
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