Blog » Market Diversification

Innovation is driving change in the business world, forcing companies to adapt to the shifting economic climate in order to survive. Technology is revolutionizing just about every sector of the economy, swiftly making traditional business models that have long been stable sources of revenue swiftly obsolete. Businesses are diversifying in order to remain competitive.

Media companies

The media sector is no exception. Examples of media companies that have diversified into new markets include the new Time Out Market, which takes place in cities such as Lisbon and brings together the best of what the city has to offer; Fox with its online gaming platform Foxbet, offering users in New Jersey and Pennsylvania various ways to bet, including input and advice from sporting experts about moneylines, puck lines, totals and more; and Forbes' content market platform Brand Voice, which now accounts for 40% of the company's income.

Concentric diversification

While there are notable cases of companies successfully diversifying their product portfolio and thriving in the new markets they have decided to enter, diversification is a high-risk strategy and one that must be approached with caution. One strategy that can be employed to minimise risks faced by businesses seeking to diversify is to adopt an approach known as “concentric diversification.” 

The notion of concentric diversification Is used to refer to a process of diversification into a market in which a degree of pre-existing knowledge and expertise can be applied. The three media companies mentioned above are all good examples of this method of diversification; Time Out applied its contacts and brand profile to launch a new product in a related field, crossing over from reviewing gastronomy and urban culture to organizing branded events in physical locations. Likewise, Fox’s move into online gaming seems like a natural progression for a media company known for its sports coverage, while Forbes capitalized on its reputation as a trusted source of news on business and technology to launch its Brand Voice platform which, as previously mentioned, has been an unbridled success.

Nevertheless, even adopting a concentric approach to market diversification is no guarantee of success. A notable case in point which perfectly illustrates this reality is Coca-Cola’s attempt to enter the wine market with its purchase in 1977 of Taylor Wines. The thinking was that Coke could use its extensive experience in marketing and access to vast distribution networks to conquer a new market. The venture, however, was a failure, and evidence that even the most well-established and successful companies are playing for high-stakes when they attempt to diversify. The lesson: proceed with caution.

Horizontal diversification 

Another form of product diversification which companies sometimes use to buffer their revenue streams against market disruption is known as “horizontal” diversification. This is when a business diversifies not into markets in which its prior knowledge and expertise may be applicable, but rather into markets in which its existing customer base are already known to be active. 

A good example of this kind of diversification is Disney’s branching out from traditional movies and television programming into the amusement parks and merchandise they are now well-known for. The crucial distinction between this form of diversification and the aforementioned concentric diversification is that, instead of using the company's key skills to find an angle from which to diversify into a new market, it is diversifying based on the consumer preferences of its audience. Running a theme park or designing merchandise has little in common with producing animated movies and cartoons, but the same people who watch its content are the same ones buying its branded merchandise and visiting its theme parks. Horizontal diversification is a strategy of launching completely different products at existing customers.

(Caption: Disneyland is an example of horizontal diversification)

There is, of course, a significant amount of synergy and overlap between these two strategies, and the three instances of media companies diversifying mentioned earlier appear to be examples of a combination of horizontal and concentric diversification in action. It's a combination that seems to be paying off.