An opportunity for growth
Strategy is often the first thing to go out the window when times get tough and as the global economy continues to deliver blow after blow, many could be forgiven for contemplating only short term.
However, everyone knows that rash decisions and short-term solutions do not make good business sense. Diligent companies are now seeking options to stimulate growth and identify new revenue streams. Product or service diversification is a growth strategy that many companies are implementing in order to remain competitive. Product or service diversification is a growth strategy that many companies are implementing in order to remain competitive.
There are many steps involved before, during and after initiating diversification. Here are some tips when considering diversifying your product and/or service.
SWOT: Conducting a SWOT analysis will help you objectively identify Strengths, Weaknesses, Opportunities and Threats associated with implementing a diversification strategy. The procedure should include the input of all people associated with the business including family members, employees and management. It is essential that during this exercise, no ideas or opinions should be disregarded without analysis. Ensure that your SWOT analysis is honest to give you the best chance of evaluating suitability of diversification for your business. Honesty will assist in avoiding costly mistakes.
Productivity of core business: Before a business even considers the possibility of diversification, it is essential that the core business is running both productively and efficiently. Business owners and managers should clearly establish the core strengths and weaknesses of their operation to determine if diversification is a viable option.
Ascertain criteria: After assessing the core business and determining suitability for diversification, the next step is to identify certain goals that the business would like diversification to deliver. For example, you may want diversification to increase sales volume and enhance your share of market. By setting clear goals, businesses will not only have clear direction for the future but also a list of criteria with which to critique the success of diversification.
Brainstorm: Your employees are at the very heart of your business; they are familiar with your clientele and are the first point of contact for your customer base. Take the time to brainstorm ideas with your employees as their knowledge of the day-to-day operations of the business and their ongoing interaction with customers places them well to provide ideas and feedback regarding diversification.
Shortlist: After the brainstorming session, create a shortlist of diversification opportunities for your business. Focus initially on the related needs of your established market or on a market with similar needs or characteristics. For example, you may run a newsagency that sells an array of greeting cards, standard to the traditional newsagency offering. You could consider introducing a line of gift products into your store, so that customers who come into your store to buy a card for someone’s birthday may also be inspired to buy a gift to go with it. Ideally you want to create a suite of products or services that relate wholly to one theme or family.
Existing customers: When considering diversification, be sure to consider your existing customer base. Speak to your customers about what they would like to see in your store and identify ways that you could accommodate their requests. Using the feedback from your regular clientele, begin to consider how you can implement their needs while simultaneously attracting a new customer base.
Research: Finding information is critical and essential to recognise past and present performance of the sector and its future prospects. Genuine and committed investigation into your current market sector and the area or areas into which you wish to diversify will assist you in better understanding market expectation. Determine if the sectors are relevant to one another and if the association will be credible and well received by your current and potential customers. Question how diversification will impact your brand image and determine if your business brand is strong enough to facilitate diversification into additional areas
Communication: Clear, constant and concise communication is important to ensure stakeholders and staff are kept informed of plans and ideas around diversification. Informed personnel are more often than not the best place to seek feedback and invite discussion conducive to business. Communication with your customers and potential customers is also essential. External advertising or marketing of your new product range once it is in place may assist in drawing new customers to your store and introducing your new line to the public
Resource management: Every new project and idea requires resources and time to make it a reality. It is important to consider your available resources before embarking on a mission to diversify; if all your available resources are channelled into the new project the core of your business will likely suffer. Readdress the allocation of your resources including finance, time and manpower; be certain that you have the resources to support diversification and that the rest of your business will continue to operate like a well-oiled machine.
Education: Introducing a new product or service into a business will require dedicated time to introduce the new skills, techniques and knowledge required. It is vital that you take the time to educate and train staff on all aspects of the new offering to ensure their product knowledge is sound and that communication with the end customer will be both concise and persuasive.
Evaluation: The effectiveness of diversification is mixed and requires constant evaluation to determine where you can improve and ensure continued success. Ultimately, your accountant will be the obvious indicator of the success of your diversification. Regular meetings will assist you to keep track of how the diversification is sitting with the business bottom line. Another good place to undertake evaluation is through customer feedback; speak to both staff and customers to gauge interest in the new product or service.