To think about 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 girls.
When you’ve been to a retailer just lately, you have probably seen how far past girls’s yoga-clothing Lululemon has grown.
As an illustration, my brother now buys all his button-down shirts and work pants from Lululemon.
Moreover, final week I purchased a washing swimsuit from the store.
On their Our Story web page, Lululemon states: “Our first designs have been made for girls to put on throughout yoga. By means of loads of suggestions from our friends, ambassadors and elite athletes, we now design for yoga, working, 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 is, and the way it pertains to your advertising technique.
What’s diversification advertising?
Diversification is a technique for development that works by including new services or products to your current product line, or increasing into new market segments. Diversification can assist your small business attain new ranges of development which may not be doable together with your present choices, notably in the event you’ve reached market penetration.
Why diversify your product choices?
There are three causes a enterprise may select to diversify its current 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 current clients.
- You have determined a brand new stage of development can solely be achieved by means of 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. When you created a distinct segment services or products, you may’ve spent the previous few years advertising your product to your core viewers demographic.
Finally, you may attain your restrict of potential individuals you possibly can attain and convert inside that viewers phase.
As an illustration, GoPro began out promoting HD cameras for sports activities and journey. Nevertheless, there are solely so many individuals they’ll goal with GoPro cameras — which is probably going why they expanded to digicam equipment, and even life-style gear, together with backpacks and clothes.
With an expanded product line, GoPro can now goal audiences who’re searching for outside gear, together with audiences who’re trying to find HD cameras.
Second, maybe you have recognized a complementary services or products to the one you at the moment provide. To establish complementary services or products, contemplate what aim(s) your merchandise assist your clients obtain, and what different instruments or companies they should obtain these objectives even sooner.
Mailchimp, for example, began as an e mail advertising instrument. 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 instrument to assist clients attain new audiences and convert these audiences sooner. Social media instruments and web site builders, then, are pure extensions of that major aim.
Lastly, a 3rd cause you may diversify your product choices is just to succeed in and convert new segments of shoppers. That is much less of a brand-new services or products, and extra of a tier-method by which you may have 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 broaden, you may want to make sure your new product options precisely deal with enterprise customers’ wants — which will probably be drastically completely different out of your small enterprise shoppers’.
One other instance is a sports activities shoe firm that continues to create sports activities footwear, and would not diversify its services or products past sports activities footwear. Nevertheless, the corporate does begin creating completely different strains of sports activities footwear to deal with completely 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. Mainly, if one in all your merchandise underperforms, you’ll reduce firm income loss in case your different merchandise are performing effectively or higher than anticipated.
- Growing model recognition: If Apple solely offered computer systems, it most likely would not be the well-known model it’s right now. However for the reason that firm has expanded into smartphones and music gamers, it is expanded the quantity of shoppers who use an Apple product. As clients enhance, so does model recognition.
- Growing buyer lifetime worth: By increasing your choices, you are growing alternatives for purchasers to search out worth in your model — which might enhance model loyalty. As an illustration, if Lululemon simply supplied yoga pants, I most likely would not be such an enormous fan. However since I can get exercise garments, work garments, and even swimwear from them, my loyalty in the direction of them is excessive.
When you create a tier-program by which you provide extra product options for various phases of a enterprise, you are minimizing the chance that your clients will outgrow you.
Nevertheless, there are additionally dangers related to diversification. A number of main dangers embrace:
- Model dilution: Individuals now not affiliate your model with the services or products you your have been initially recognized for, and so they’re uncertain how your new merchandise relate to your small business mission or values.
- Resourcing limitations: You do not have the price range or headcount to successfully create new services or products, or your advertising group would not have the sources to correctly goal a brand new market viewers.
- Inconsistent assist for added merchandise: In case your assist group is not prepped to deal with the brand new complaints or challenges prospects and clients are going through together with your new product, the business’s general satisfaction together with your model might lower.
Advertising and marketing’s Function in Diversification
If your organization is diversifying its product portfolio, your advertising group performs a serious function within the success of that growth.
Amongst different issues, your advertising group is probably going in command of market analysis (together with your new phase’s distinctive challenges and ache factors), product improvement (i.e. making certain your product efficiently meets your target market’s wants, particularly as these wants evolve over time), and making a profitable product launch.
Finally, your advertising group must learn to goal your new market phase — which is likely to be tough in case your model hasn’t focused that viewers in earlier advertising campaigns. (To study extra about viewers segmentation and focusing on, check out The Marketer’s Information to Segmentation, Concentrating on, & Positioning.)
And, simply as importantly, your advertising group must mitigate a few of the dangers related to diversification.
As an illustration, 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 small business’ imaginative and prescient, objectives, or general mission.
Lastly, when advertising your new merchandise, companies, or increasing into new market segments, contemplate the way you may diversify your advertising technique to attain development with these new product choices.
A advertising technique that labored effectively for one product will not essentially work effectively for an additional — so it’s vital, as a marketer, you stay versatile and open-minded to pivoting to correctly deal with the wants of those new clients.
When achieved correctly, diversification is an extremely thrilling alternative to gasoline long-term development … Simply contemplate the expansion Lululemon has seen since making the brave leap into attire past girls’s yoga garments.