Horizontal diversification strategy

From CEOpedia | Management online
Horizontal diversification strategy
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Horizontal diversification involves the extension of a production of products or service above and beyond the industry, in which the company operates. Companies Introduce into the production new products which are based on know-how, experience and technical-economic capabilities of the company. These products are usually based on related technologies, meet different needs of buyers or similar needs in other ways. Such strategy also allows to use existing brand and distribution system in new area of activity.

Effects of application

Application of horizontal diversification strategy allows the company to achieve a number of advantages, among which following can be distinguished:

  • decrease in risk,
  • independence from previous collaborators,
  • maintenance or improvement of the competitive position of the company, primarily due to the activities in known areas and market segments,
  • increase in the development potential,
  • possibility to make better use of resources, skills and strengths
  • development of the company based on the unchallenged business strengths,
  • new products can compensate for some of the losses from the collapse of sales of already existing products,
  • possibility of spreading the risks.

Worth highlighting is also that this type of diversification is associated with the least amount of risk. Working in familiar areas and in the conditions of the absence of significant changes in the customers will allow for a significant reduction in risk and independence from existing competitors.

If you want to use this strategy, you must first, however, get an idea of whether the company has a group of solid, loyal customers. And if so, whether they would be interested in buying of some new products or services. You must also ensure that the company is able to take care of the production, distribution and sale of these products or services to existing customers.