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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. Two smaller consumer product firms, for example, may not be able to afford an effective sales force, new product development or testing programme, or warehousing and logistics systems. This is a horizontal diversification model, introducing unrelated products to the same customer base. In an attempt to expand their market size and invigorate their brand, many firms take a shot at diversifying their brand. 16 Example of Unrelated Diversification? Founded in 1937, the German car manufacturer had the initial mission of developing a "people's car" under the Nazi government. Some firms that engage in related … The Bentley marque was also acquired over a series of deals in the 1990s and 2000s, while Bugatti and Lamborghini were acquired in 1998, giving the company a huge presence in the luxury car segment. Through competing in this business, Honda developed a unique ability to build small and reliable engines. Coffee shops never had more than a donut or bagel to grab with your cup of java. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. These are still the same meals. More and more small and large businesses in these industries have diversified to expand the market. Looking at Starbucks, the lines of people waiting for coffee during lunch breaks made it a reasonable risk to add more sandwich, salad and breakfast items to the menu. 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. Related diversification makes more sense than unrelated because the company shares assets, skills, or capabilities. 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. Restaurants and coffee shops are always evolving. Textron, Inc. Honda Motor Company provides a good example of leveraging a core competency through related diversification. Netherlands. 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. The short answer is no. In addition to achieving higher profitability, there are several reasons for a company to diversify. Although the Walt Disney Company built its initial reputation in animation and children's cartoons in the early 20th century, the company has pursued an aggressive diversification strategy, looking at numerous ways to cater to their core demographic of children and family audiences. This is called a concentric diversification model where they are similar products. Diversification allows for more variety and options of products and services. Consumers spend a lot of time and money trying to stay in shape, get healthy and recover from injuries. Even insurance companies such as State Farm and Allstate offer bank products and limited investment products. 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. For example: 1. Advantages & Disadvantages to Corporate Strategy Diversification. 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. Because films and television are both aspects of entertainment, Disney’s purchase of ABC is an example of related diversification. Some business owners keenly realized there was more they could offer existing clients and diversified. 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. After all, if the customer trusts the bank with his money, why wouldn't he trust the bank with investment ideas or life insurance. With more than 15 years of small business ownership including owning a State Farm agency in Southern California, Kimberlee understands the needs of business owners first hand. 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. For example, a phone company that adds or expands its wireless products and services by purchasing another wireless company is engaging in related diversification. When not writing, Kimberlee enjoys chasing waterfalls with her son in Hawaii. 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 … 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. Because it leverages strategic fit, companies that engage in related diversification are more likely to achieve gains in shareholder value. Examples of Horizontal Diversification. Examples of conglomerate diversification include General Electric, Virgin Group Ltd. and The Walt Disney Company. Similarly, two firms when combined may be able to justify an expensive … If somebody was to ask what industry Virgin operates in primarily, the first thought that comes to mind would inevitably vary between each of us. It now employs 706,000 people across a variety of sectors such as chemicals, steel, automotive, engineering, telecommunications, information systems, and … Unrelated Diversification is a form of diversification when the business adds new or unrelated product lines and penetrates new markets. Is Diversification Necessary? Revenues per sale go up and those who might forgo coffee to get the sandwich might be more inclined to get both from Starbucks. Strategic fit allows an organization to achieve synergy. Well-known, highly innovative companies include Intel, Google, DuPont, and all the pharmaceutical companies. The technology would be the same but the marketing effort would need to change. These ways are (a) related- constrained, and (b) related-linked. 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). But many successful companies, such as Tyco and GE, continue to buy unrelated … It involves adding new products to your portfolio for markets that are similar or related to your existing customer base, with the ultimate aim of making your business bigger, increasing revenues and, above all, creating a more versatile, resilient, and future proof organisation. How to Remove a Bank Account From PayPal if I Am Unverified, How to Combat the Negative Side of Consumer Behavior With Societal Marketing. Some firms that engage in related diversification aim to develop and exploit a to become more successful. It also seems to increase its market share to launch a new product that helps the particular company to earn profit. 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. The reason is banks have housed brokerage subsidiaries for a couple of decades now realizing that the ability to offer one-stop-shopping for all things money and investing is attractive to consumers. 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