Diversification strategies fall into 3 different categories. Concentric diversification refers to a growth strategy that involves leveraging existing competencies and expertise to enter new markets. Horizontal diversification involves offering services that are not related to existing expertise but may appeal to markets currently served. And lateral diversification refers to services that match neither existing expertise nor customer base. Either of these methods can be employed based on the circumstances and potential opportunities. As in any other growth strategy – a close look at market potential, entry costs and return on investment should be given serious consideration. Following are 3 potential options for diversification growth strategies:
- Concentric Diversification Strategy – This strategy involves utilizing existing competencies and expertise to provide services for groups of customers not currently supported. An example of this strategy in automotive repair would be a shop that provides services for individual vehicle owners expanding to service vehicles owned by businesses. Many of the processes are essentially the same but the customer is different. Marketing, selling and providing services to a retail audience is quite different than the business to business environment
- Horizontal Diversification Strategy – This strategy involves offering new services to existing customers. Generally this means services that are outside existing competencies but will be of interest to existing customers. An example of this would be a repair shop deciding to offer tire service or conversely a tire shop deciding to offer repair services. The offering requires skills outside current expertise but it can be sold to existing customers.
- Lateral Diversification Strategy – This strategy involves growing into an entirely new area. The service offerings will require an entirely new skill set and will be supplied to an entirely different market.
