The business environment has become extremely competitive, and companies seek opportunities to grow and expand their market share. Sometimes, the businesses have to use various strategies to expand into new markets and manage risks. Sadq (2016) argues that diversification is a leading strategy that companies use to expand into new markets and manage risks. Based on the findings of Grant and Jordan (2012), diversification is evident where a company expands into a new market or develops a new product. With diversification, companies minimize the potential harm; even during the economic downturn thus manage risks. The business expands into other activities and operations that rarely respond to the current economic situation negatively (Coleman 2013). For instance, when one brand is hitting the market and earning large revenues, the other brand could be registering losses. To this effect, the investor can offset the losses thus keep the business viable. Similarly, with competitive pressure becoming a reality in the market, companies must fight their positions by being innovative and creative. Diversification helps them to fight market saturation. Given the significance of diversification strategy, this article will try to answer the question: To what extent companies should diversify their brand when entering a new market.
The extent of diversification
In the modern business environment, many companies have opted for diversification as the only way to invade the new markets. However, there is a host of reasons for businesses to seek solace in diversification (Abdul 2003). Importantly, a company needs to consider diversification if the firm continues to report massive losses or maximize sales at a particular time. By considering diversification, the company stands to benefit by extending the portfolio of services and products. The Startups Teams (2013) assert that such actions would see the company generate regular revenue streams. Diversification ensures an organization reach out to more customers using its old products or sell new products to the current clients. This effort supercharges an organization’s growth prospects. Perhaps, the most important aspects of diversification are the extension of brand reputation (Grant and Jordan 2012). With the knowledge of a new market, the company can use optimize its brand image to improve its success.
The decision to diversify is an opportunity yet to be tapped. As the business develops, it is critical to consider widening the product offerings. This natural progression determines the stage of an organization. According to Tauber (2011), growing and small companies may not have enough resources to invade new markets. However, they can pursue this noble cause through partnership. To diversify is a strategic and complementary fit between businesses. For example, an organization can buy into its supply chain. Despite various factors, the company must be concerned about its customer base thus raises revenues (Abdul 2003). Although there is no specific business stage designed for diversification, the firm should consider the competencies, the costs of such ventures, and the viability of the current market.
Diversification may determine a company’s real prospects. However, companies seeking diversification must be cautious. The company should only consider diversification when the business is profitable and stable (Clawson 2015). When an organization is struggling to build a sales time or win orders, there would be a real danger to go for diversification. Clawson (2015) has identified the Virgin Group has survived on diversification thus becoming a brand value. The Virgin Group has been desperate about ventures, and Branson has never let this dream vanish. Through the empire’s logo and brand value, the business has succeeded by generating sheer revenue volumes thus justifying the effectiveness of diversification. Diversification strategy seems to drive growth (Clawson 2015).
To some businesses, diversification is a ‘do or die’ matter because it is the only way to beat competitors. Staying in a single market for long using the same product exposes an organization to risks. In the challenging economic moments, even small enterprises are finding new products, new revenues streams, and new markets (Markides 1997). Business is a fight for a space and no company is willing to relinquish its market share. The companies must prepare for this risky strategy because the managers would “focus on their new venture without neglecting their core business” (Grant 2012). The investor will be trying to do everything to control both situation and risk spreading into thin units that are uneconomical. There are numerous successful stories of small enterprises that have used diversification to grow and expand their market stakes. These firms use their core skills and resources to complement businesses services thus taking the brand to a strategic territory.
Successful companies in the international market like the Virgin Group have maximized their core competencies to survive and expand into new territories. The Virgin Group boasts of exemplary technologies, skills, and resources that have ensured it responds to the expectations of the clientele (Coleman 2013). The core competencies are beyond the products offered in the market but focus on the competitiveness of different goods and services. Abdul (2003) maintains that the Virgin Group has survived the rivals’ onslaught because its core competencies are unique and the rivals can rarely copy. For Virgin Group, its leading core competencies include fun style advertising approach, promotions, strong brand reputation and name. These competencies have enabled it to establish sustainable competitive edge because it has incorporated everything in its internal processes and corporate culture as explained by Grant (2012).
When the brand has a weak spot, it would be prudent for the company to change the game. Importantly, the company requires refreshment thus avoids a narrow category. Sometimes the brand can have the negative associations. In such a situation, the company should embrace diversification or brand extension. The firm must not be a conglomerate to transform its brand category. It only needs to modify the brand to fit the new category (Tauber 2011). For example, Vaseline petroleum jelly has existed since the 1800s. Vaseline has always assessed the markets needs and responded by modifying the brand thus avoids holding it back. In fact, it introduced the ‘Intensive Care’ as the captivating words that have changed the business as it focuses on the lotion category than negative category of greasy. The brand extension has thus made Vaseline succeed in the market (Tauber 2011: 44).
Brand extension is an important strategy to enter new markets as it allows an organization to expand the brand’s franchise. The brand extensions and diversification have always helped an organization to gain distribution, acceptance, and name recognition. As evident in the study, a successful brand extension needs the best strategy and solid concept. Otherwise, the firm could fail in its new ventures. Before companies seek solace in diversification, they must consider their resource stability. The core competencies can give it an edge in expanding into a new market and introduce a new product line successfully. The strength of brand name and reputation are among the defining factors in business expansion. Therefore, diversification is a strategy for growth and success that must be considered by firms at all costs. No business can survive for decades in a single category. At some point, the organization will need to diversify and invade new markets because a single market may be saturated. This makes diversification the best strategy to survive a competitive market.
Abdul, R 2003, ‘Virgin corporate strategy’, Case Study, available from https://www.robabdul.com/the-virgin-group-case-study.asp
Clawson, T 2015, Jun 8, ‘Diversify or focus; which strategy is best for growing’, Growing Business, available from https://startups.co.uk/diversity-or-focus-which-strategy-is-best-for-a-growing-business/
Coleman, A 2013, June 14, ‘Diversify or die: explore new markets and help your business grow’, Guardian Small Business Network, available from https://www.theguardian.com/small-business-network/2013/jun/14/diversify-die-explore-new-markets-business-grow
Grant, R M and Jordan, J 2012, Foundations of strategy. John Wiley & Sons Ltd., West Sussex.
Grant, RM 2012, The Virgin Group in 2012, available from https://www.foundationsofstrategy.com
Markides, CC, 1997, Nov/Dec, ‘To diversify of not to diversify’, Harvard Business Review, available from https://hbr.org/1997/11/to-diversify-or-not-to-diversify
Sadq, Z M 2016, ‘Virgin group success businesses: diversification, and key strengths’, Account and Financial Management Journal, vol. 1, iss 2, pp. 78-83, available from https://everant.org/images/afmjissue/v1-i2/1.pdf
Tauber, EM 2011, ‘Extendonomics: 10 ways to extend your brand’, Parham Santana, Inc., pp. 1-53, available from https://www.parhamsantana.com/images/uploads/whitepapers/ParhamSantana_10_Ways_to_Extend_Your_Brand.pdf
The Startups Team 2013, Nov 26, ‘Is business diversification the right strategy for your business?’ Growing Business, available from https://startups.co.uk/is-business-diversification-the-right-strategy-for-your-business/