Diversification And The Marketing Effect

Businesses often start considering diversification strategies to make themselves feel better about things when times are tough. It breeds new hope for new sales.

Diversification as a strategy in uncertain times is a popular approach with risk mitigation and revenue spread being the primary achievement, if executed well. However, there is a very real challenge that most haven’t considered – a breakdown of your marketing channels.

Typically the two most popular diversification strategies are product diversification or market diversification (through new penetration).

Often though, businesses are caught out by the increased marketing costs associated with these strategies through poor planning.

Consider this – the target customer that has been your focus through your targeted product marketing is quite likely different to your diversified market customers.

What does this mean?

You may be speaking to the wrong target customer about your new products or services.

When considering diversification, it is critical that you think about your current best customers and whether diversification is the right fit for them. Otherwise you need to develop separate and different marketing plans for your new target market customers and ensure there is no confusion or cross over in your channels or messaging.

So first of all – which diversification strategy are you employing? Product diversification or market diversification?

Your choice will likely add additional cost to your marketing budget. This is a trap that small businesses often fall into as the selling of the new solutions haven’t been well thought-through during the R&D phase.

So, what are some of the specific areas your marketing may be affected by diversification?

  • Your target customer avatar may change
  • Your key touch points may change
  • Your message may change
  • Your branding and designs may need to change
  • Where you display your advertising may change

Have you run the numbers on what these changes may cost you?

Before diversifying you must consider your best existing customers and how they may or may not be affected. If you view the change in target customer as being minimal you may be ok – but if you are changing drastically you may need to reconsider your decision.

It may make more financial sense to develop new products for your existing markets than to invest in developing new markets. The advantage is that you already have a customer base and know what they want. A product diversification strategy is especially attractive for companies that have a loyal following and successful products, leveraging your knowledge of customer needs, complementing those you already supply and focusing your attention of adding value to the relationships and loyalty you have fostered. Acquiring new customers in a new market is often a more expensive approach.

If you are determined to employ a market diversification strategy instead of a product diversification strategy, you need to examine how you can increase sales revenue while minimising additional marketing and new sales acquisition costs.

Broadening and diversifying your marketing strategy to include a wider audience for your promotion may diversify your customer base. When you explore promotional strategies that target customers outside your traditional base, you may find that this diversification results in additional sales.

Diversifying your products for the same market works – and is a no brainer if you can build on the relationships and loyalty you have become accustomed to. Are you sure you can sell new markets to this customer?

Or do you need to penetrate a new market? In which case you need to assess channels for than market etc – and invest a lot more.

The challenge in New Zealand is all business owners have a kiwi “Can-do” attitude. We often think we can just roll our sleeves up and make it work. But I would caution you against rushing in to diversification. Think about your existing customers first – and whether you can get more of those or serve them better.

Then make a business case for both options having weighed up the addition cost in marketing.


– Logan Wedgwood

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