To contemplate the potential payoff of product diversification, let’s begin with an instance.
Lululemon, an athletic attire firm, was based in 1998 with one core product: yoga clothes for ladies.
For those who’ve been to a retailer just lately, you have doubtless seen how far past ladies’s yoga-clothing Lululemon has grown.
As an example, my brother now buys all his button-down shirts and work pants from Lululemon.
Moreover, final week I purchased a washing go well with from the store.
On their Our Story web page, Lululemon states: “Our first designs had been made for ladies to put on throughout yoga. Via loads of suggestions from our visitors, ambassadors and elite athletes, we now design for yoga, operating, biking, coaching and most different sweaty pursuits for ladies and men.”
That is an instance of efficient diversification in-action. Right here, we’ll discover what diversification advertising and marketing is, and the way it pertains to your advertising and marketing technique.
What’s diversification advertising and marketing?
Diversification is a technique for development that works by including new services or products to your present product line, or increasing into new market segments. Diversification may also help your enterprise attain new ranges of development which may not be doable along with your present choices, notably if you happen to’ve reached market penetration.
Why diversify your product choices?
There are three causes a enterprise would possibly select to diversify its present product line:
- You have reached the ‘restrict’ on the quantity of individuals you possibly can convert in a market phase.
- You have recognized a brand new services or products that enhances the wants of your present clients.
- You have determined a brand new degree of development can solely be achieved via addressing new market segments.
Let’s dive into the distinction between the three of those causes, now.
First, maybe you have reached the restrict of the quantity of individuals you possibly can attain in a market phase. For those who created a distinct segment services or products, you would possibly’ve spent the previous couple of years advertising and marketing your product to your core viewers demographic.
Ultimately, you may attain your restrict of potential individuals you possibly can attain and convert inside that viewers phase.
As an example, GoPro began out promoting HD cameras for sports activities and journey. Nevertheless, there are solely so many individuals they will goal with GoPro cameras — which is probably going why they expanded to digicam equipment, and even way of life gear, together with backpacks and clothes.
With an expanded product line, GoPro can now goal audiences who’re on the lookout for outside gear, together with audiences who’re looking for HD cameras.
Second, maybe you have recognized a complementary services or products to the one you at present provide. To determine complementary services or products, take into account what aim(s) your merchandise assist your clients obtain, and what different instruments or providers they should obtain these objectives even sooner.
Mailchimp, for instance, began as an e mail advertising and marketing software. Now, the corporate has diversified its product choices and expanded into social media instruments and even web site builders.
Mailchimp created an e mail advertising and marketing software to assist clients attain new audiences and convert these audiences sooner. Social media instruments and web site builders, then, are pure extensions of that main aim.
Lastly, a 3rd purpose you would possibly diversify your product choices is solely to succeed in and convert new segments of consumers. That is much less of a brand-new services or products, and extra of a tier-method through which you have got the identical product with various options relying on viewers phase.
An instance of this can be a software program firm that originally focused small companies, and is now increasing into the enterprise viewers phase.
To efficiently increase, you may want to make sure your new product options precisely handle enterprise customers’ wants — which can be drastically totally different out of your small enterprise purchasers’.
One other instance is a sports activities shoe firm that continues to create sports activities sneakers, and would not diversify its services or products past sports activities sneakers. Nevertheless, the corporate does begin creating totally different traces of sports activities sneakers to handle totally different viewers segments: together with tennis gamers, golfers, and joggers.
Benefits and Disadvantages to Product Diversification
There are just a few main advantages to diversification, together with:
- Minimizing losses: Ever heard the time period, “Do not put all of your eggs in a single basket”? That is the premise of this benefit. Principally, if considered one of your merchandise underperforms, you’ll reduce firm income loss in case your different merchandise are performing nicely or higher than anticipated.
- Rising model recognition: If Apple solely offered computer systems, it in all probability would not be the well-known model it’s right this moment. However for the reason that firm has expanded into smartphones and music gamers, it is expanded the quantity of consumers who use an Apple product. As clients improve, so does model recognition.
- Rising buyer lifetime worth: By increasing your choices, you are rising alternatives for purchasers to search out worth in your model — which may improve model loyalty. As an example, if Lululemon simply provided yoga pants, I in all probability would not be such a giant fan. However since I can get exercise garments, work garments, and even swimwear from them, my loyalty in direction of them is excessive.
For those who create a tier-program through which you provide extra product options for various phases of a enterprise, you are minimizing the danger that your clients will outgrow you.
Nevertheless, there are additionally dangers related to diversification. A couple of main dangers embody:
- Model dilution: Individuals not affiliate your model with the services or products you your had been initially recognized for, and so they’re uncertain how your new merchandise relate to your enterprise mission or values.
- Resourcing limitations: You do not have the funds or headcount to successfully create new services or products, or your advertising and marketing crew would not have the sources to correctly goal a brand new market viewers.
- Inconsistent assist for added merchandise: In case your assist crew is not prepped to deal with the brand new complaints or challenges prospects and clients are going through along with your new product, the business’s total satisfaction along with your model may lower.
Advertising’s Function in Diversification
If your organization is diversifying its product portfolio, your advertising and marketing crew performs a serious function within the success of that growth.
Amongst different issues, your advertising and marketing crew is probably going accountable for market analysis (together with your new phase’s distinctive challenges and ache factors), product growth (i.e. guaranteeing your product efficiently meets your audience’s wants, particularly as these wants evolve over time), and making a profitable product launch.
In the end, your advertising and marketing crew must discover ways to goal your new market phase — which may be tough in case your model hasn’t focused that viewers in earlier advertising and marketing campaigns. (To study extra about viewers segmentation and concentrating on, check out The Marketer’s Information to Segmentation, Concentrating on, & Positioning.)
And, simply as importantly, your advertising and marketing crew must mitigate a number of the dangers related to diversification.
As an example, entrepreneurs can reduce model dilution by telling a complete story to the general public that outlines why these new services or products make sense to your enterprise’ imaginative and prescient, objectives, or total mission.
Lastly, when advertising and marketing your new merchandise, providers, or increasing into new market segments, take into account the way you would possibly diversify your advertising and marketing technique to attain development with these new product choices.
A advertising and marketing technique that labored nicely for one product will not essentially work nicely for one more — so it is vital, as a marketer, you stay versatile and open-minded to pivoting to correctly handle the wants of those new clients.
When performed correctly, diversification is an extremely thrilling alternative to gasoline long-term development … Simply take into account the expansion Lululemon has seen since making the brave leap into attire past ladies’s yoga garments.