Exploring New Product and Market Frontiers
Business Diversification as a Growth Frontier
This past May, Apple announced that it would discontinue the iPod Touch, the last remnant of an iconic product line that first went on sale in October 2001. The iPod was a ground-breaking device that upended the music and electronics industries and helped to revitalize a struggling personal computer company that, at the time, was losing ground to rival Microsoft and its hardware partners.
The introduction of the iPod is among the most well-known examples of business growth by diversification. Business diversification involves entering a new market or industry while also typically creating a new product for that market. Apple continued with great success to build on this strategy with a series of follow-on products, including the iPhone, iPad, Apple Watch, and Apple TV.
As with Apple, GE, Amazon, and other leading companies, business diversification can be highly rewarding, increasing sales and revenues, growing market share, generating new revenue streams, achieving higher margins, and improving competitive positioning. But expanding product lines and exploring unfamiliar markets are not without risks and can have significant impact on core businesses, as well as resource availability and allocation.
Considering a business diversification strategy should be a deliberative process that includes:
- Conducting detailed market research for the new product or service, including exploring leverageable synergies with your company’s existing markets and doing a thorough assessment of potential customer needs
- Establishing a clear product development strategy supported by a solid business plan
- Ensuring that sales, marketing, and supply chain operations are all in place to cope with the added demands of the new product and market
Although the future is unknowable, it’s important to research and test before proceeding rather than discovering that the chosen strategy is not viable after a significant commitment has been made.
Diversification, when done effectively, can be a critical driver of growth. Most industry analysts credited Steve Jobs’ introduction of the iPod with helping to turn Apple from a nearly bankrupt company to an eventual $3 trillion plus behemoth.
If you’re considering a diversification strategy to jumpstart your business and are weighing the resources you might need to realize your goals, Washington Trust is here to help you through the process.
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For more information or to speak with one of our trusted advisors about your unique financial needs, contact us at 800-465-2265 or submit an online form.