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Sanjit Keskar
Professor, India
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Horizontal Diversification versus Product Development. What's the Difference?
From the summary article on this site about the Ansoff Matrix.
Product Development. Sell new products or services in current markets. These can be accessories, add-ons, or completely new products...
Horizontal diversification. This occurs when the company acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines.
Both seem to be saying the same thing as far as completely new products and existing market (current customer groups).
So where is the difference? And isn't diversification also about new markets - so where is the new markets in horizontal diversification?
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Jaap de Jonge
Editor, Netherlands
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Product Development versus Horizontal Diversification Good question.
First of all, BOTH of these strategies are dealing with a situation of a business firm attempting to market NEW PRODUCTS (or services).
- As the summary states correctly, in the case of a product development strategy a la Ansoff, we are aiming to sell NEW PRODUCTS IN THE CURRENT MARKET.
- In the case of diversification we are aiming to sell NEW PRODUCTS IN A NEW MARKET.
- In case of horizontal diversification the clients are the same. Because horizontal diversification involves providing NEW PRODUCTS IN A NEW MARKET TO EXISTING CONSUMERS. For example, a cosmetics firm aims to enter the jewelry market by marketing these jewelries to its loyal cosmetics customer base.
Remember to pay attention to the subtle difference between "clients" and "markets". Hope this helps..
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Isaiah Maisiba
Manager, Kenya
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Product Development versus Horizontal Diversification The points of distinction lie upon: level of risk envisaged, resources available (synergies), and corporate market strategy This could be an expansion strategy through M&A (mergers & acquisitions) or otherwise. For instance, a marketing strategy may take cognizance of a robust distribution system, therefore adopt horizontal/cross selling. This means less risk as customers already know you. You use the same channel for the new products, this requires less resource input (synergy effect).
Corporate expansion into a new market with existing product (market-penetration/development) or a new product in the current market (market-development) is resource-intensive and may include local/international M&A or partnerships (strategic).
In a nutshell, product development is about the product extension.
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Paramathmuni srinivas Kumar
India
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In Blue Ocean Strategy is it Diversification or Product Development If we were to create and capture the uncontested market then I don't think the definition fits into the above mentioned categories... Is there any new term/definition available for Blue Ocean Strategy?
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Isaiah Maisiba
Manager, Kenya
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Product Development versus Diversification and Blue Ocean Strategy Blue Ocean Strategy (BOS) falls, in my view, within the'Diversification strategy ' in the Ansoff matrix. Seemingly an extension of target marketing-via-creating a niche(BOS). The other 3 quadrants in Ansoff, may or may not fall in the 'red-ocean', depending on the competitive landscape. There seems to an overlap between 'tactics and strategy' based on the competitive field in question. The process of creating a BOS may or may not be due to previously winning a red ocean war, by virtue of innovation, new products, markets, new clients For example, currently the virtual meeting market may be still considered a Blue Ocean (though no longer purely) due to the pandemic in the short run but it may turn into a red ocean in the long haul.
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Jaap de Jonge
Editor, Netherlands
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Blue Ocean Strategy Could be Diversification, But... @Isaiah Maisiba: Some thoughts… According to our short but accurate Summary of Blue Ocean Strategy, a Blue Ocean Strategy is always about "developing uncontested market space".
This is NOT the same as a new market. That's why there can be 2 forms of BOS:
1. To launch completely new industries, as eBay did with online auctions. That could then be Diversification if it involves an existing company doing it. But if it is a start-up creating the BOS, it is not called diversification.
2. More common for a blue ocean is to be created from within a red ocean when a company expands the boundaries of an existing industry. That could then be seen as a heavy case of product development or a light case of diversification. It depends what you define as the Industry, market or a market segment.
Of course, both Ansoff and BOS are just models. They distinguish certain forms of strategy, but these are simplifications of the reality, which is always more complex and has more grey shades.
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Sanjit Keskar
Professor, India
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Existing Customers in a NEW Market @Jaap de Jonge: I catch the strain of logic but by and large it escapes me how there could be existing customers in a NEW market. Could you revert with an example each that clearly differentiates the two? And thank you for the effort in replying, Sir.
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Jaap de Jonge
Editor, Netherlands
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Existing Customers in a NEW Market @SanJIT Keskar: I think I already wrote about providing NEW PRODUCTS IN A NEW MARKET TO EXISTING CONSUMERS:
"For example, a cosmetics firm aims to enter the jewelry market by marketing these jewelries to its loyal cosmetics customer base."
So the "existing customers" points to current customers of the firm. These current customers are obviously not buyers in the new market since the market doesn't exist yet.
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Sanjit Keskar
Professor, India
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Horizontal versus Concentric Diversification @Jaap de Jonge: OK I get it now...I was equating customer base with existing market. The example made things clear too. Thank you.
The original paper by Ansoff explained Horizontal Diversification as what we today call Concentric Diversification while the concept of Horizontal Diversification that I began this thread with was not in the purview of his paper at all.
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