Market diversification by entering a new market or industry in which you don’t currently operate is one issue that comes up time and time again through our resilience workshops. The most resilient businesses demonstrate that they can operate in multiple markets, and the highest growth businesses often achieve this by taking existing products and services into new markets.
Business continuity is important and businesses do need to focus on their existing operations and their existing customers, but the risk with this is that disruption happens! Any given market, however protected through the existing relationships, will be impacted by external factors. Management theory uses a framework called PESTEL analysis to look at this and highlights that markets will be affected by political, economic, social, technological, environmental and legal changes. Global pandemics such as the current COVID-19, shifts to online retail, trends for low carbon products, decisions to leave Europe, and data protection regulations are all examples of changes that have happened to businesses and forced them to react, change or even leave markets.
No industry or business is immune from these changes, but businesses can reduce the risk of losing key markets by ensuring they have alternative options. Diversification into new markets can bring resilience, leverage resources, drive economies of scale, maintain competitive advantage, grow brand, and can offset future changes.
Some common business diversification strategies are:
- Geographic diversification: exporting or setting up overseas can feel daunting, but if designed right it represents a well understood path. Too often businesses do not plan for success, do not allocate adequate planning and resource, do not understand their new markets and select markets based on poor research. While the US, China and the EU always represent large markets, countries like Australia and Canada respond to brand UK and can often present easier trade partners with no language barriers and easier legislation.
- Demographic diversification: Attracting new types of customers involves carefully understanding the profile and buying behaviours of different social groups but it can enable you to target your offering into new markets such as different age, gender, online and social profiles.
- Product diversification: There are many examples of where this strategy has been used, such as oil companies moving into renewables, manufacturing companies moving into maintenance, and also where the same product could be used for different types of applications. Read our blog about how new products can increase resilience.
- Sector diversification: As well as avoiding over dependence on one key customer, it is also useful to think about classes of customer. In the last economic cycle we’ve seen large corporates failing, public spending cuts and some sectors majorly damaged. Consider public or private sectors, construction or leisure say, business to business sales (B2B) or direct selling (B2C). Changes that will affect your marketing strategy, may also change product specification and can impact risk management processes (consumer protection laws, fulfilment challenges, tax requirements and ability to pass on costs), but it can reduce exposure to existing customers.
The strategies above can build resilience, enable economies of scale and also increase the value of any business, but only if planned for success. Too often businesses “try” to diversify and then dismiss it as a failure without really allocating the time, research, investment and resource to see the benefits. Entering new markets takes time and hard work, and so planning at the start and securing stakeholder buy in is important.
Click here to get in touch with our business resilience team to discuss how we can help you with your diversification options or enquire about a business resilience workshop.
Our simple and free online diagnostic can also help you think about how you might build increased resilience in your business.