Five Brand Diversification Advantages To Consider Omer Riaz August 31, 2022

Five Brand Diversification Advantages To Consider

types of diversification

This article will provide your different brand diversification advantages for those businesses who want to diversify their brand. Nowadays, the competition among online and offline retailers is reaching new heights. Therefore, working with a single strategy and pursuing it for a long time is ineffective.

One has to develop different influential tactics to grow a brand in the competitive marketplace. Among these strategies, one of them is brand diversification. If your business is experiencing a fast growth rate, you might consider diversifying it.

Whatever business you run, diversifying your brand is always exciting. A diversification strategy provides you the knowledge of developing new products and the opportunity to expand in new markets. However, this decision requires tremendous effort and innovative techniques.

brand diversification advantages

What is Brand Diversification? An Overview

When the company thinks of expansion in a particular area of its business, it’s known as brand diversification. It can be related to expanding new products or entering different markets to develop a customer base.

However, there are multiple challenges associated with brand diversification; it is still one of the most influential tactics to grow revenues and attain long-term growth.

Your implemented strategy depends on the type of diversification tactic you choose for your brand. So let’s go through different brand diversification advantages tactics to understand its nuances.

  • Horizontal Diversification

Horizontal diversification relates to producing new products or services for a similar market. Businesses add up new products to their existing lines that can entice consumers. For instance, a hair care brand’s favorite product is hair shampoo, and they launch a new product as a hair conditioner.

Brands have to study the market demand and its consumers before diversifying horizontally. Therefore, it will become hard to succeed without analyzing influential market factors of the product you are creating.

  • Concentric Diversification

Similar to horizontal diversification, concentric diversification relates to adding new products to an existing portfolio to increase the customer base. For example, you own a snack factory. Every time you add a new flavor of snacks, you seek concentric diversification.

If this strategy works out for you, your brand can grow tremendously by an increase in sales of different flavors. Even if the market of your few flavors dries up, other flavors will balance revenues.

  • Vertical Diversification

Vertical Diversification relates to expanding business in the forward or backward direction. Companies add new products that are complementary to the existing ones.

Amazon is a perfect example of a vertical diversification strategy. Along with playing their role as the leading platform for buyers and sellers, they also sell their products. Moreover, the company has its distribution channel.

  • Conglomerate Diversification

When the company aims to expand its offering by entering into new product lines unrelated to existing ones, it’s known as conglomerate diversification.

The company has to deviate from its business model for conglomerate diversification. For instance, a tech company produces its line of stationery products.

Brand Diversification Advantages

Now you know different types of brand diversification advantages and strategies. Now let’s discuss the benefits of brand diversification.

Reaching new customers

Without customers, businesses have no existence. The more your brand can attract more customers, the probability of its success surges accordingly.

Unfortunately, SMEs find it hard to reach new customers because it requires a lot of financial resources. Therefore, diversification can be a severe challenge.

Conglomerate and vertical diversification are the simplest ways to target wider audiences. The vertical expansion benefits B2B and B2C sales, while conglomerate allows businesses to reach fresh customers.

SMEs can opt for the strategy of diversification without making a new company or redesigning their new model. It can uplift their revenues and customer base.

Reducing risk

Every business has a certain probability of facing failure. In the middle of an uncertain market, no business owner can predict what’s next. Small businesses are even more likely to face failure due to their limited revenues, especially in the early days. However, there are a few productive things that these business owners can do to minimize their risk.

Business owners can enter new markets through brand diversification to embed their roots. As a result, the brand will increase its revenues and surge its customer base. Moreover, due to any uncertain situation, if one market doesn’t go well, the brand can earn income from other tapped markets. Hence, the risk of failure is minimized.

Demand consistency

If your offered business products are limited, the possibility of getting repetitive demand patterns is greater. For instance, if your business sells winter costumes, your product demand will increase in winter. Whereas, there is less demand for your products in summer and other seasons. It means your earnings will shrink.

To promote the consistent demand annually, you have to diversify your apparel costumes business by offering different clothes for summer to meet consistent demand. It will help in balancing your sales throughout the year.

Reducing production costs

When the company plans to diversify, they are more likely to produce products related to its existing product lines. Resultantly, they benefit from economies of scope. It’s a theory that signifies that the production of one good minimizes the expense of producing similar good. As a result, the company’s revenues exceed without investing in acquiring new capital.

Moreover, the company can also reach economies of scale by producing larger quantities of similar products. Diversification of brand is effective to decrease costs of production and escalating revenues unless a brand thinks of conglomerate diversification which requires a completely new strategy and capital investment.

Broader brand recognition

Every brand knows the importance of branding. You are more likely to develop relationships with your customers and reach a new audience through successful branding strategies.

If your brand has greater business recognition, the probability of its success increases. Therefore, small businesses always try to increase their brand exposure.

Aside from increasing revenues, brand diversification is a productive marketing tool to increase your brand awareness. After posting your brand’s logo on different products, your company’s visibility improves. Along with varying marketing tactics, brand diversification advantages is productive in extending brand reach.

In the End

Now you have the overview and benefits of brand diversification. However, despite its unprecedented advantages, it’s a very risky process. To reduce the probability of risk, you must conduct thorough market research in the area you want to diversify.

If you are brand and thinking of diversifying your company, develop a constructive plan to foster success. When your diversification plan goes well, your brand revenues can grow exceptionally.

FAQS

What is diversification, for example?

Brand diversification Advantages relate to brands deciding to expand their area of product lines or services. For instance, Uber cab services expanded their area of services and launched UberEATS.

What are the three types of diversification?

  • Vertical diversification
  • Conglomerate diversification
  • Horizontal diversification

What is an example of product diversification?

Product diversification is a strategy opted by companies to increase their profitability and market share from new products. A good example is General Electric company operates in several segments like Aviation, healthcare, etc.

Why do brands diversify?

Brand diversify to increase their market reach and customer base. But, more importantly, it helps SMEs to minimize their risk of business failure and surging revenues.