Corporate strategies of diversification

Methods of DIversification

• There are four principal categories of diversification strategies, each with potential advantages, risks, and degrees of applicability.
• The four types of diversification include:
• Horizontal diversification
• Vertical diversification
• Concentric diversification
• Conglomerate diversification

1

• Horizontal diversification:

In horizontal diversification, a company adds new products to its operation. These products or services are entirely new but will bear some relation to the original product, offering an expanded set of options to the customer.

For example, a notebook manufacturer that enters the pen market is pursuing a horizontal diversification strategy

2

• Vertical diversification:

In vertical diversification, also known as vertical integration, a company expands to include different portions of the manufacturing process under one corporate structure, usually by moving up or down the supply chain.

A car manufacturer expanding into the aluminum industry to provide raw materials for its current product line is an example of vertical diversification.

3

• Concentric diversification: Concentric diversification occurs when a company develops a new, improved product related to its existing product. For example, a company manufacturing wired headphones might expand to offer wireless headphones—the new product uses the latest technology and offers something new to the customer.

• Coke purchased several beverage manufacturers to expand beyond the soft drink industry to the beverage industry. 
• Coke's acquisitions of Vitamin Water, Honest Tea, Fuze Beverage and Core Power were concentric diversification moves, providing it with brand recognition in new categories.

4

• Conglomerate diversification: