leading companies Graham Kenny 1. Corporate Finance Institute: What is Product Diversification? It also seems to increase its market share to launch a new product that helps the particular company to earn profit. These ways are (a) related- constrained, and (b) related-linked. In order to illustrate this point, and demonstrate in real terms how horizontal diversification works and what it can achieve, we've compiled a list of companies that have mastered this strategy – whether through aggressive acquisition or in-house product development. This is due to the Virgin Group partaking in whats known as unrelated diversification the fifth strategy in Ansoffs Matrix. In the budget market for passenger cars, Volkswagen sells its own eponymous brand, as well as cars produced by SEAT and Skoda. Altogether, the Volkswagen Group has around 15 unique brands in their passenger and commercial vehicles segments as of 2020. A common example of a diversified company … This company may be the very definition of a conglomerate. Diversification mitigates risks in the event of an industry downturn. Related Diversification . Unlike many entertainment companies, Disney does not solely rely on films, TV, or parks; it is well diversified and relies on its wide reach to create one of the most recognized and … As an example, an automotive dealership that purchases a detailing company (cleans, washes, polishes vehicles – both inside and outside) features involved with related diversification. Sit down restaurants never used to offer to deliver or curbside pickup. Based in New York, Estée Lauder is one of the largest cosmetics brands in the world; it generated sales worth $15bn in 2019 alone and is present on the Fortune 500 list of the most valued companies in the US. This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. Diversification strategy examples are prevalent in big and small businesses around the globe. From 1976 onwards, they created iconic computers such as the Macintosh series, but by the late 1990s, the company was struggling in this market, falling way behind its main rival Microsoft and their hardware partners. 16 Example of Unrelated Diversification? A company can diversify its operations by either acquiring another company or merging with a company with a different line of business. Founded 1891. Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries. Strategic fit allows an organization to achieve synergy. Is Diversification Necessary? For decades, Apple was a brand strongly rooted in the computer and software segments of the tech industry. In 1965, for instance, they acquired Audi, a premium car brand aimed at business executives and other high-income customers. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. The rationale of the related-diversified company 2.1 Relatedness based on tangible operational and market linkages 2.2 Relatedness and the cross-business transfer of competences and knowledge Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. For example: 1. 2. Initially a lighting business, General Electric diversified into medical devices and household appliances. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. Some firms that engage in related diversification aim to develop and exploit a core competency to beco… Let us know your thoughts in the comment section below! This diversification model is subtle, because the company isn't changing what it offers. For example, if the shoe producer enters the business of clothing manufacturing. Credit card payments collected by DeltaQuest Media (Ireland) Ltd, Company No IE548227, Registered address: The Black Church, St. Mary’s Place, Dublin 7, Ireland. Disney has also ventured successfully into family-friendly vacations through a bouquet of theme parks and hotel resorts. The world is full of companies that found their specialty early on, built a market around that product, and decided to make it their focus. Since Google is in the information business, in 2014 it purchased Titan Aerospace, a maker of solar-powered drones, an example of related diversification. In addition to achieving higher profitability, there are several reasons for a company to diversify. A business diversifies by offering assorted goods and services, participating in new industries, or finding multiple uses for its products. Examples of Horizontal Diversification. Once upon a time, you would see a very distinct difference between a physical therapy office helping patients recover from injury and a massage therapy office focusing on relaxation and preventative care. What other successful examples of horizontal diversification have inspired you? But it gathered significant pace in the 1990s and beyond, with the company cementing its place in the entertainment and media industry through acquisitions of Miramax Films, ABC, Fox Family, Pixar, Marvel, LucasFilms, and 21st Century Fox. Companies’ implements related diversification strategies in order to achieve and exploit economies of scope and build a competitive advantage by building on existing resources, capabilities, and core competencies. Keen to modernise their traditionally hand-drawn animation, the company – rather than start from scratch – acquired a smaller competitor with the requisite levels of experience and expertise already in place. Honda Motor Company provides a good example of leveraging a core competency through related diversification. Here are our picks: Coffee shops never had more than a donut or bagel to grab with your cup of java. Related diversification makes more sense than unrelated because the company shares assets, skills, or capabilities. Notable examples are JP Morgan and Chase Bank or Meryll Lynch and the Bank of America. Show Similar Companies. They even ventured into the cruise business in 1998, when they failed to find new partners for licensed cruises to Disney World resorts. Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or industries (Figure 8.1). Yet Lauder started as a simple makeup and cosmetics brand in 1946, with a catalogue that included just three products: lotions, creams, and cleansing oil. A bad reputation Everyone knows how huge General Electric, or GE, is but may not realize how highly diversified it is as well, with operation in many areas. After all, if the customer trusts the bank with his money, why wouldn't he trust the bank with investment ideas or life insurance. When the business-units of a company share the inputs, production technologies, distribution channels, etc. Over the years, however, the company has made a spate of acquisitions in the automotive business, acquiring other car brands and marques to cater to a wide range of customers. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. Some firms that engage in related diversification aim to develop and exploit a to become more successful. These are still the same meals. Related diversification is when a company operates several businesses that are linked together in some way or has several related product lines. Market diversification means extending your business offering to new market segments not previously targeted. Restaurants and coffee shops are always evolving. Consumers spend a lot of time and money trying to stay in shape, get healthy and recover from injuries. When consumers have multiple products with a financial institution, they are less likely to shop around and leave to a competitor. occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or business lines (Figure 8.11 “The Sweet Fragrance of Success: The Brands That “Make Up” the Lauder Empire”). Some firms that engage in related … As fierce rivals with similar products and backgrounds, Pepsi and Coca-Cola have conducted much of their diversification in direct competition with each other. There are several routes to successful horizontal diversification; you could develop new products in-house, leveraging your existing patents and technologies, and adding new divisions. It wasn't until it diversified horizontally into related markets that the company started to see real growth, launching the Aramis men's fragrance in the 1960s. Understanding Diversification. These include jet engines and replacement parts; rail system products and maintenance services; power plant products andservices;gas,steamandaero turbines;advancedturbinemachinery;majorappliances such as Their diverse lineup gives them access to a wide range of markets across the world, catering to every possible taste and customer profile. Estée Lauder also diversified into the haircare segment when it acquired Aveda in 1997, strengthening this purchase with the integration of Bumble & Bumble – a salon and hair products brand – into the company's portfolio in 2006. Indeed, this is one of the benefits of horizontal diversification; there is more than one way in which you can make it work for your particular venture. For example, BIC is said to follow a related- constrained diversification, as all of its products (razors, cigaret… When companies open new channels of products, locations and new partnerships, they increase the chance of long-term success and increasing profits. Many major banks have merged with major financial services firms. Of course, many high-end restaurants may feel that delivery or curbside pickup degrades the image of the restaurant, but other owners make a choice to expand their market reach with convenient purchase options. Revenues per sale go up and those who might forgo coffee to get the sandwich might be more inclined to get both from Starbucks. They have also diversified into fruit juices (Tropicana), energy drinks (Gatorade), mineral water (Aquafina) and, in recent years, have even signed a deal with coffee giant Starbucks to distribute certain products in Latin America. among themselves, the diversification, is known as related-constrained. Diversified Company: A diversified company is a company that has multiple, unrelated businesses. But many successful companies, such as Tyco and GE, continue to buy unrelated … More and more small and large businesses in these industries have diversified to expand the market. Virgin expanded from a record label to transport and healthcare, while Disney’s operations range from film studios to entertainment parks. Although Coca-Cola has generally ignored the snacks market, its drinks portolio almost mirrors Pepsi's. Thanks to this continued diversification (other prominent products include the iPad, the Apple Watch, and Apple TV) the company has been able to create an entire ecosystem of interlinked tech products – a core driver of its entire business model. Their acquisitions of Marvel and LucasFilm, meanwhile, has given them ownership over the merchandising and image rights of some of the world's most iconic media brands, while its ownership of 21st Century Fox has provided a huge catalogue of movies and television shows for the Disney+ digital streaming service – a key competitor to established giants such as Netflix, Amazon Prime, and Apple TV. A core competency is a skill se… Through competing in this business, Honda developed a unique ability to build small and reliable engines. Examples of Business Diversification. Netherlands. Well-known, highly innovative companies include Intel, Google, DuPont, and all the pharmaceutical companies. The acquisition of Pixar is a particularly good example of Disney's approach. Indeed, this diversification strategy has been cultivated over a significant period, with the launch of the first Disney World theme park as far back as 1955. Similarly, two firms when combined may be able to justify an expensive … However, the two firms together may be able to operate at an efficient level. This gives consumers a different level of trust. Concentric Diversification – Concentric diversification focuses on adding products and services that are related to the main product or service that the business is known for offering, typically using the same production tools or technology tools. They also acquired Scania AB and MAN SE to improve its commercial vehicle business, as well as venturing into the sports car market through the purchase of Porsche (2009), and the motorcycle market with Ducati (2012). Companies must survey new markets to make sure there is a need or desire and that the new business offering will be accepted by the public. In 1965, for instance, Pepsi merged with the snack-food giant Frito Lay, resulting in an increased focus on snacks ( Lay's, Doritos, and Cheetos are just some of the brands in this sector owned by Pepsi). 1.1 Actual diversification development over the last decades 1.2 Diversification and company performance: results of empirical studies 2. 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