What is Product Diversification?
What does product diversification mean?
Product diversification is the practice of expanding the original market for a product. This strategy is used to increase the sales associated with an existing product line, which is especially useful for a business that has been experiencing stagnant or declining sales.
Why is product diversification?
Diversification allows for more variety and options for products and services. If done correctly, diversification provides a tremendous boost to brand image and company profitability. Diversification can be used as a defense. By diversifying products or services, a company can protect itself from competing companies.
What is diversification with example?
A company may decide to diversify its activities by expanding into markets or products that are related to its current business. For example, an auto company may diversify by adding a new car model or by expanding into a related market like trucks.
What is the best example of diversification?
Apple. One of the most famous companies in the world, Apple Inc. is perhaps the greatest example of a related diversification model. Related diversification means there are notable commonalities between the existing products and services, and the new ones being developed.
What is the main objective of diversification?
Diversification is a strategy that aims to mitigate risk and maximize returns by allocating investment funds across different vehicles, industries, companies, and other categories.
What is a company’s product mix?
A product mix is the total number of product lines and individual products or services offered by a company. Additionally referred to as product assortment or product portfolio. Product mixes vary from company to company. Some have multiple product lines with lots of products in each line.
What are the three types of diversification?
There are three types of diversification: concentric, horizontal, and conglomerate.
- Concentric diversification.
- Horizontal diversification.
- Conglomerate diversification (or lateral diversification)
When should a company diversify?
First and foremost, companies diversify to achieve greater profitability. Diversification is used by businesses to help them expand into markets and industries that they haven’t currently explored. This is achieved by adding new products, services, or features that will appeal to the customers in these new markets.
What does diversification mean in marketing?
a strategy in which a company seeks growth by adding products and markets of a kind unrelated to its existing products and markets.
How does Coca Cola use diversification?
Coca Cola is a classic example of how to do diversification, with a standing commitment to exploring new ideas and growing product diversity that, even in a world when people are so virulently anti-sugar, the Coca Cola brand is still largely adored.
What is simple diversification?
It is the process of altering the mix ratio of different components of a portfolio. The simple diversification can reduce unsystematic risk. The research studies on portfolio found that 10 to 15 securities in a portfolio will bring sufficient amount of returns.
How has Apple used diversification?
Apple Inc. embraces diversification strategy as a means of promoting its viability in the market. Largely, the creation of the three products lines compounds the sources of the company’s income. In fact, the company does not rely on a single source of income because the product design belongs to different categories.
How can a company diversify?
A diversified company owns or operates in several unrelated business segments. Companies may become diversified by entering into new businesses on its own by merging with another company or by acquiring a company operating in another field or service sector. Conglomerates are one common form of a diversified company.
What is diversification in business strategy?
Diversification is a growth strategy that involves entering into a new market or industry – one that your business doesn’t currently operate in – while also creating a new product for that new market.
What are the examples of horizontal diversification?
Because shoes are different products than shirts, bottoms or dresses, this is an example of horizontal diversification, as the same customers who purchase the company’s clothing might be inclined to also purchase shoes from their stores.
What is portfolio and diversification?
Portfolio diversification is the process of investing your money in different asset classes and securities in order to minimize the overall risk of the portfolio. Just imagine what would happen if you invested all your money in a single security. Everything would be great as long as the stock’s performance is good.
What is the best diversification strategy?
13 smart ways to diversify your portfolio
- Choose both short-term and long-term investments. …
- Buy index funds, mutual funds, or ETFs. …
- Invest in a target-date fund. …
- Invest in an asset allocation fund. …
- Add some individual stocks. …
- Buy bonds. …
- Choose investments with varying levels of risk. …
- Invest in different types of companies.
What are the benefits of diversification?
The benefits of diversification include:
- Minimizes the risk of loss to your overall portfolio.
- Exposes you to more opportunities for return.
- Safeguards you against adverse market cycles.
- Reduces volatility.
What is the product mix of Coca Cola?
In reality Coca cola has a very large product portfolio). The product line in this case is 3. This is because there are 3 core product lines within the product mix Soft drinks, Minute maid and mineral water. This is the basic explanation of how to analyse the product mix of any company.
What is product mix explain with example?
Product Mix, another name as Product Assortment, refers to several products that a company offers to its customers. For example, a company might sell multiple lines of products, with the product lines being fairly similar, such as toothpaste, toothbrush, or mouthwash, and also other such toiletries.
What is Apple’s product mix?
Apple’s Products (Product Mix)
In this case, Apple’s product mix includes goods and services that are classified as, or involves information technology. However, the company continues to expand its product mix, creating the possibility of adding non-IT-related products in this 4P element.
What are the advantages and disadvantages of product diversification?
A diversification must be a well thought out step for an entity. It can boost the growth of the firm thereby leading it towards wealth maximization. However, it can also prove to be a costly failure for certain entities. A detailed analysis of the potential market must be conducted before opting for diversification.
What are the two basic diversification strategies?
There are six established types of diversification strategies: Horizontal diversification. Vertical diversification. Concentric diversification.
What are the risks of diversification?
Diversifying carries the risk of diluting your gains as well as your losses. For example, if you own 50 stocks and one of them doubles, it only amounts to a total gain of 2 percent in your overall portfolio, rather than 100 percent.
Is diversification good or bad Why?
1. A badly diversified portfolio can lend itself to poor performance, higher risk and increased investment fees. 2. A diversified portfolio will not protect you from devastating losses in severe bear markets or a panic like the steep declines of 1987, 2000-02 or 2008-09.
What is product adaptation?
Product adaptation is the process of changing a product to meet the needs of customers in a market other than the one in which it is made. This can be an important part of a company’s strategy for selling in a foreign country.
Is PepsiCo diversified?
PepsiCo. With PepsiCo’s diversified business model, the company has been able to acquire or create complementary products in both the food industry and the beverage industry.
What is a unrelated diversification strategy?
Unrelated diversification occurs when a company enters an industry that bears no significant resemblance to the company’s current industry or industries. Unrelated diversification can help SBU businesses balance their cash flows.
Why is Coke unhealthy?
Even one or two colas a day could increase your risk of type 2 diabetes by more than 20%. Sugar intake is linked to high blood pressure, high cholesterol, and excess fat, all of which increase the risk of heart disease. Colas and other sugary drinks have been linked to an increased risk of pancreatic cancer.
What is a good diversification ratio?
A diversified portfolio should have a broad mix of investments. For years, many financial advisors recommended building a 60/40 portfolio, allocating 60% of capital to stocks and 40% to fixed-income investments such as bonds. Meanwhile, others have argued for more stock exposure, especially for younger investors.
How many stocks is diversified?
The average diversified portfolio holds between 20 and 30 stocks. Diversifying your portfolio in the stock market is an investing best practice because it decreases non-systemic, or company-specific, risk by ensuring that no single company has too much influence over the value of your holdings.
What is diversification ratio?
The diversification ratio is the ratio of the weighted average of volatilities divided by the portfolio volatility.
How does Amazon diversify?
However, over the years it has quietly entered and come to dominate a number of other industries and truly diversified its revenue streams. Its entry into thriving industries such as healthcare, subscription services and its bold decision to delve into physical retail has helped the company to become a global empire.
Who owns the company of Iphone?
Tim Cook is the CEO of Apple, whose sales of iPhones and more have made it a company with one of the world’s largest market capitalizations. Cook, who became CEO in 2011, had previously served as Apple’s Chief Operating Officer under Steve Jobs.
What is related diversification?
Related diversification occurs when a firm moves into a new industry that has important similarities with the firm’s existing industry or business lines (Figure 8.11 The Sweet Fragrance of Success: The Brands That Make Up the Lauder Empire).
How does diversification create value for a company?
However, diversifying by acquiring a company in a related product market can enable a company to reduce its technological, production, or marketing risks. If these reduced business risks can be translated into a less variable income stream for the company, value is created.
What is product horizontal diversification?
a growth strategy in which a company seeks to add to its existing lines new products that will appeal to its existing customers.
What is geographical diversification?
Geographical diversification means holding securities from different regions. You don’t want all of your money in a single country or region for the same reason you don’t want it all in a single stock.
What is the difference between conglomerate and horizontal diversification?
The concentric strategy is used when a firm wants to increase its products portfolio to include like products produced within the same company, the horizontal strategy is used when the company wants to produce new products in a similar market, and the conglomerate diversification strategy is used when a company starts …