Concentric diversification, also known as convergent diversification, is a strategic business growth approach where a company expands by introducing new products that are related to its existing product lines to appeal to new customer segments. This strategy leverages the company's current technologies, marketing channels, or production capabilities to develop new offerings that can attract new buyers, thereby fostering growth and market expansion.
This growth strategy focuses on developing and adding new products within a company's existing product range. The primary goal is to attract new customers who may not have been reached by the original product offerings, while still maintaining a connection to the company's core competencies or market presence.
Key Characteristics of Concentric Diversification
Concentric diversification is distinct from other growth strategies and is characterized by several key aspects:
- Product Line Expansion: It involves the creation of new products that enhance or extend a company's current product lines, often by introducing different sizes, flavors, models, or entirely new but related product categories.
- Customer Acquisition Focus: The core objective is to reach and attract new customer groups or segments that were previously untapped.
- Leveraging Existing Strengths: Companies typically utilize their established technologies, brand reputation, distribution networks, or manufacturing expertise to develop and market these new products, ensuring a degree of synergy.
- Relatedness: Unlike conglomerate diversification, the new products bear a logical connection or synergy with the company's existing operations, even if they target different customer demographics.
Concentric vs. Other Diversification Strategies
While concentric diversification involves expanding product offerings, it differs from other diversification strategies:
- Horizontal Diversification: This involves adding new products that are unrelated to the existing products but appeal to the same customer base.
- Conglomerate Diversification: This involves adding entirely new products or services that are unrelated to the company's existing offerings or markets, often with the aim of spreading risk or entering new, high-growth sectors.
Concentric diversification, therefore, sits in the middle, leveraging existing capabilities to target new customers with related products.
Practical Examples
Several industries and companies demonstrate concentric diversification:
- Beverage Company: A juice manufacturer that primarily sells fruit juices might introduce a new line of vegetable-based smoothies, leveraging its existing processing facilities and distribution channels to appeal to health-conscious consumers who prefer vegetable blends.
- Software Developer: A company that develops accounting software for small businesses might launch a new version of project management software designed for large enterprises. While the software functionality is different, it leverages the company's core competency in business application development and targets a new customer segment.
- Sporting Goods Brand: A company known for manufacturing basketball shoes might expand into producing high-performance running shoes. They use their expertise in athletic footwear design and existing customer loyalty but reach a new group of athletes.
By strategically adding related products to existing lines, businesses can effectively grow their market share and customer base without venturing into completely unfamiliar territories.
