Meaning of concentric diversification strategy
Diversification (marketing strategy) - Wikipedia
Other companies expand their industry footprint through mergers and acquisitions or enter new industries through a diversification strategy. Concentric diversification occurs when a company expands by entering into an industry related to its current operations. Companies also diversity to reduce risk and utilize excessive cash on the balance sheet.
Concentric diversification is also called related diversification. Related diversification is a diversification strategy for driving shareholder value increases. One example of concentric diversification is sharing resources or facilities. Companies do this to achieve economies of scale and reduce costs.
- What Are the Benefits of Concentric Diversification??
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For example, a metals distributor who needs a larger warehouse may contract with a manufacturing company that has a processing facility with extra space. The manufacturer benefits because it operates on just-in-time principles and now part of its raw materials are now on site. The distributor benefits from the space, the equipment and the warehouse management expertise of the manufacturer.
Another way to achieve concentric diversification is through strategic partnerships. Both of the above examples illustrate backward integration. An example of forward integration would be a toy manufacturer acquiring or opening a toy store.
Diversification: Definition, Levels, Strategy, Risks, Examples
Vertical diversification has a number of benefits, including:. Therefore, you are expanding your market share within the market your company already operates in. Concentric diversification allows you to leverage your existing brand recognition, customer base, and loyalty, resources, and distribution channels.
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This type of diversification aims at generating additional revenue from your existing customers, while also attracting new customers who may have been interested in your other products but are more swayed by your newer products. An example of concentric diversification would be if a smartphone company began selling smartwatches i.
What is a diversification strategy, its types, and why is it important?
The benefits of conglomerate diversification are high ROI and high growth due to the addition of an entirely new revenue stream in a totally separate market. An example of conglomerate diversification would be a clothing company branching out into toys.
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Defensive and offensive diversification are terms that have more to do with why a company wants to diversify, rather than how. Offensive diversification, on the other hand, occurs when a company is aggressively seeking to grow its profits and market share through diversifying its product or service line in order to enter new markets and capture more customers.