Despite the widescale business disruption created by Covid-19, many companies have responded proactively by diversifying their products and services and seeking out new markets to drive revenue and bolster cashflow. However, even in the best of times, entering a new market or industry is a major undertaking that requires careful preparation and some key resources in place to avoid jeopardizing your core business. So, what does diversification entail and what should be the key considerations for businesses looking to evolve?
Put simply, business diversification entails developing a new product or expanding into a new market to increase profitability and drive sales. The strategy is often used to manage business risk during economic downturns, when businesses spot an opportunity to diversify into new growth products or markets to offset muted or reduced demand for their existing portfolio of products and services.
There are three distinct types of diversification strategy:
There will always be myriad practical questions to consider for any business looking to diversify. Some of the most pressing include:
At the outset it is important to be realistic about the resources you have to invest, both in terms of finance, time and wider infrastructure. This should encompass both the initial funds and support you need to begin diversifying, as well as the ongoing funds needed to support expansion over the longer term.
Diversifying into a new area requires significant research on many fronts – regarding competitor activity, any new required means of distribution and any new skills and resources required to realize your product and bring it to market. Getting the timing right too is hugely important - if your target market is performing poorly, then now may not be the best time to be introducing a new product.
In today’s acutely price sensitive market, it can be tempting to adopt low pricing, especially when attracting new customers. However, offering a potential client a price well below market average, effectively means starting off on the back foot. Be sure to consider your new competitors’ pricing levels to put yourself in a position where you can command the right price when it’s time to enter negotiations.
Once you’ve identified how you want to diversify, you need to ensure the right systems, technology and teams are in place to implement the necessary processes. What’s more, you’ll need to be confident you can deliver them with the efficiency and expertise you’ve become known for in your core business.
When diversifying there is always a risk that existing customers may question or be confused by your brand appearing on new products or in unfamiliar markets. Ensuring the new offerings can create wider value for the customer should always be an important area of focus. Practically speaking this could involve tweaking your current service to sell to a new group of users or providing a more affordable product alongside a premium range.
One of the most powerful drivers of diversification strategies can be customer purchasing data. Getting closer to customers has been more important than ever for businesses during the pandemic, with those companies prepared to embrace sales enablement technology to better interpret evolving customer demand at a significant advantage to their less data-enabled counterparts. When businesses can easily access a comprehensive range of key metrics on each of their customer relationships rather than relying on impenetrable spreadsheets, they can quickly interpret subtle trends around buying patterns, enabling them to be much more agile when it comes to identifying opportunities to diversify into new products and take advantage of precious cross and upselling opportunities. The benefits are compelling. Indeed, when we polled a group of our own most active customers using the sales-i platform in the third quarter of last year, some 60% of respondents said they had been able to successfully introduce new product and service offerings to mitigate the impact of the crisis.
While Covid restrictions remain in place for the short term at the very least, 2021 is likely to be another year of uncertainty across the business community. That said, being able to adapt your business to suit changing market conditions should be a prerequisite for any business owner, whatever the wider economic circumstances. Deep diversification obviously won’t be possible or indeed sensible for all, but for those ambitious firms looking to capitalize on new opportunities in what will effectively be an entirely new economy, asking the right questions and undertaking the right planning will be essential to help them weigh up the risks and rewards of changing business lanes.