Diversification Strategy is a term that you might have heard of in the world of business and investing. It refers to the strategy of spreading out investments, products, or services across multiple sectors or industries. Diversification aims to minimize risk and increase potential returns by reducing the impact of individual factors that can affect a single investment. In this blog post, we will explore what diversification strategy is and how it can benefit businesses and investors alike. We will also take a closer look at some real-life examples of diversification in action, helping you to gain a better understanding of how this technique can help to improve financial outcomes for individuals and organizations alike.
1. Defining Diversification Strategy
Diversification strategy is a method of business expansion that involves launching new products or product lines in order to grow a company. This strategy is applied when businesses wish to enter new markets or expand their market share. Essentially, diversification involves introducing a new product into a company’s supply chain in order to encourage growth. The definition of diversification is the development of new products in new markets. A diversification strategy can take the form of horizontal diversification, such as the example of Virgin, which began selling records and now has expanded to include Virgin Media, Virgin Holidays, and Virgin Money. Overall, diversification is a risk management strategy that involves a company mixing a wide variety of investments within their portfolio to ensure long-term growth and success.
2. The Purpose of Diversification Strategy
The purpose of diversification strategy is to help businesses expand their market share and enter new markets by launching or acquiring new products. Diversification enables companies to maximize their current resources and identify opportunities to grow and develop in different markets and product areas. By branching out into new product offerings, businesses can reduce their dependence on a single product or market and minimize their risk. Diversification can be considered as a growth strategy that allows companies to adapt to changing market conditions and stay competitive. Virgin, for example, started as a record store and has since diversification into Virgin Media, Virgin Holidays, and Virgin Money. Diversification strategy is just one of many different strategies for growth identified by Igor Ansoff in 1957, but it remains a valuable tool for businesses seeking to expand and evolve their operations.
