Business diversification refers to the process by which a company or organization employs the diversification business strategy as a means to an end. There is no one reason for embarking on business diversification, because it depends on the aim that the company or organization in question is trying to achieve. Some companies may decide to embark on business diversification in order to spread their risks, while others may simply use it as a means for expansion and growth. The various forms of business diversification include areas like customers, products or services, geographic and suppliers.
Customer diversification is a form of business diversification that involves plans by a company to diversify its products or services with the specific aim of targeting customers who are not currently a part of the company’s chief customer base. For instance, a company that is known for the production of products primarily aimed at teenage girls may decide to diversify its business with the aim of capturing the more mature women demographic. Such a business diversification process may include the production of items aimed at this selected demographic and the creation of awareness relating to this new diversification process. This strategy is important because it helps the company spread or mitigate its risks so that if there is a decline in the teenage market, the company can still rely on the business from the older women.
Another process of business diversification is geographic diversification. Just like the name suggests, geographic diversification involves the physical aspects of the efforts by a company to diversify. This process is even more necessary in the era of globalization where many companies realize there are markets beyond their geographical boundaries. A good example of companies that utilize this type of diversification are the various fast food companies that often open new branches in different locations all over the world in an effort to increase their reach and consequently maximize their profits.
A diversification of suppliers means that a company diversifies the source of its raw materials and other necessary supplies. The aim of this diversification tactic is also the reduction of risks. When a company relies only one supplier or source for its raw materials, it stands the risk of not having any option if there is ever a problem with the supplier or source. For instance, the supplier might increase the price of the raw materials, and if the company does not have any alternative this will certainly affect its profit margin.
