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Diversification Strategy

Under this growth strategy, the company seeks increased sales by developing new products for new markets. The diversification does not add variety in a product but introduces entirely different types of products. Products added may be complementary, i.e., they fit in the product mix. Such expansion will permit greater utilization of special talents and know-how, of common overheads, of the marketing organization, of the research programmed and staff, of the brand name or of other facilities. For example, a manufacturer may diversify his activities by manufacturing VCPs and VCRs along with TV sets. Such an expansion is known as concentric diversification as it is related to existing products and facilities.

It may also happen that the new product is in not way related to the exiting product line. Such type of growth is called conglomerate diversification. For example, a cement manufacturer may enter into the production of sugar of petrol chemicals.

A firm may choose the strategy of diversification under the following situations:

(a)    When the firm cannot meet its growth target by the strategy of intensive growth only.
(b)    When diversification promises a greater profitability than expansion.
(c)    When the firm has huge funds at its disposal which could be utilized for expansion of products and market.

The distinction between intensive growth strategy and diversification strategy must be carefully noted. In the case of intensive growth he firm increases production and sales of its existing products. But in case of diversification, there is addition of new products and new markets.

A firm may also choose both the intensive growth and diversification strategies simultaneously if it has adequate capital to finance growth and human recourses to handle growth. An soft has designed the following matrix to decide the choice between intensive growth strategy and diversification strategy.

Product-Market Matrix and Growth Strategy

Present New
Present Market Penetration
(Penetrate existing markets
with existing products)
Product Development
(Introduce new products in
existing markets)
New Market Development
(Enter new markets with
existing products)
(Introduce new products in
new markets)

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