Let’s start with an example to look at the potential payoff for product diversification.
Lululemon, a sportswear company, was founded in 1998 with a core product: Yoga clothing for women.
If you’ve been to a store recently, you’ve probably seen how far Lululemon has grown beyond yoga clothing for women.
For example my brother is buying now everything his button-down shirts and work pants from Lululemon.
Also, I bought a swimsuit from the store last week.
On her Our Story page, Lululemon explains, “Our first designs were made for women to wear to yoga. With a lot of feedback from our guests, ambassadors and top athletes, we are now designing for yoga, running, cycling, exercising and most of the other sweaty people Things occupations for women and men. “
This is an example of effective diversification in action. Learn what diversification marketing is and how it belongs to your marketing strategy.
What is diversification marketing?
Diversification is a growth strategy in which new products or services are added to your existing product line or new market segments are opened up. Diversification can help your business reach new levels of growth that may not be possible with your current offerings, especially once you have reached market penetration.
Why should you diversify your product offering?
There are three reasons a company might choose to diversify its existing line of products:
- You have reached the limit on the number of people you can convert in a market segment.
- You have identified a new product or service that meets the needs of your existing customers.
- You have decided that a new level of growth can only be achieved by opening up new market segments.
Now let’s look at the difference between these three reasons.
First, you may have reached the limit of the number of people you can reach in a market segment. If you’ve created a niche product or service, in the past few years you may have marketed your product to your target demographic.
Eventually you will reach your limit of potential people that you can reach and convert within that audience segment.
For example GoPro started selling HD cameras for sports and adventure. There are only so many people who can be targeted with GoPro cameras, however – which is probably why they have expanded to include camera accessories and even lifestyle gear, including backpacks and clothing.
With an expanded product line, GoPro can now appeal to target groups looking for outdoor equipment as well as target groups looking for HD cameras.
Second, you may have identified a complementary product or service to what is currently on offer. To identify complementary products or services, consider what goals your products will help your customers and what other tools or services they need to achieve those goals even faster.
Mailchimpwas launched, for example, as an email marketing tool. Now the company has diversified its product offerings, expanding into social media tools and even website builders.
Mailchimp has developed an email marketing tool that helps customers reach new audiences and convert them faster. Social media tools and website builders are therefore natural extensions of this primary goal.
A third reason you could diversify your product offering is to reach and convert new customer segments. This is not so much a brand new product or service as it is a tier method where you have the same product with different features depending on the audience segment.
An example of this is a software company that was originally aimed at small businesses and is now expanding into the company’s target audience segment.
To successfully expand, you need to ensure that your new product features are tailored precisely to the needs of business users – which is drastically different from those of your small business customers.
Another example is an athletic shoe manufacturer that continues to make athletic shoes and does not diversify its products or services beyond athletic shoes. However, the company begins developing various lines of athletic shoes for different target group segments: including tennis players, golfers and joggers.
Advantages and disadvantages of product diversification
Diversification offers a number of key benefits, including:
- Minimize losses: Have you ever heard the phrase “don’t put all your eggs in one basket”? That is the requirement for this benefit. If one of your products is underperforming, you can minimize the company’s lost sales if your other products perform well or better than expected.
- Increase in brand awareness: If Apple were only selling computers, it probably wouldn’t be the well-known brand it is today. However, as the company expanded into smartphones and music players, the number of customers using an Apple product has increased. As the number of customers increases, so does brand awareness.
- Increase in customer lifetime value: By expanding your offering, you increase the opportunities for customers to find value in your brand – which could increase brand loyalty. For example, if Lululemon only sold yoga pants, I probably wouldn’t be that big a fan. But since I can get workout clothes, work clothes, and even swimwear from them, my loyalty to them is high.
When you create a tier program in which you offer additional product functionality for different phases of a business, you minimize the risk of your customers outgrowing you.
However, there are also risks associated with diversification. Some of the main risks are:
- Brand dilution: People no longer associate your brand with the product or service they were originally known for, and they are not sure how your new products relate to your business mission or business values.
- Resource constraints: You do not have the budget or the number of employees to effectively develop new products or services, or your marketing team does not have the resources to properly target new market audiences.
- Inconsistent support for additional products: If your support team is unprepared for the new complaints or challenges and potential customers are facing your new product, the overall industry satisfaction with your brand may decline.
The role of marketing in diversification
If your company diversifies its product portfolio, your marketing team will play an important role in the success of that expansion.
Among other things, your marketing team is likely responsible for market research (including the unique challenges and weaknesses of your new segment), product development (that is, making sure your product is successfully meeting the needs of your target audience, especially as those needs change over time) and creating a successful product launch.
Ultimately, your marketing team needs to learn how to target your new market segment. This can be tricky if your brand hasn’t targeted this audience in previous marketing campaigns. (For more information on audience segmentation and targeting, see the Marketer’s Guide to Segmentation, Targeting, and Positioning.)
Equally important, your marketing team needs to mitigate some of the risks associated with diversification.
For example, marketers can minimize brand dilution by telling the public a full story that outlines them Why These new products or services make sense for your company’s vision, goals, or overall mission.
Finally, when marketing your new products, services, or expanding into new market segments, consider how you can diversify your marketing strategy Achieve growth with these new product offerings.
A marketing strategy that works well for one product may not work well for another product. Hence, it is important that you, the marketer, remain flexible and open in order to properly meet the needs of these new customers.
When done right, diversification is an incredibly exciting opportunity to fuel long-term growth … Just think of the growth Lululemon has seen since making a bold leap into clothing beyond women’s yoga clothing.