Concentric diversification

Concentric diversification

Business / By /
  • Concentric diversification is a growth strategy employed by companies to expand their business into related markets or industries that are closely aligned with their existing products, technologies, or capabilities.
  • It involves entering new markets or offering new products or services that complement the company’s core competencies, technologies, or customer base, thereby leveraging existing resources and capabilities to drive growth and diversify revenue streams.
  • Concentric diversification allows companies to capitalize on synergies, economies of scope, and cross-selling opportunities while minimizing risks associated with entering completely unrelated or unfamiliar markets.

Principles of Concentric Diversification:

  1. Strategic Fit and Alignment:
    • Concentric diversification begins with strategic fit and alignment to identify related markets or industries that complement the company’s core competencies, technologies, or customer segments.
    • Companies assess market dynamics, competitive landscapes, and growth opportunities to determine the feasibility and attractiveness of entering new markets or offering new products or services that build on existing strengths and capabilities.
  2. Risk Management and Synergy Creation:
    • Concentric diversification emphasizes risk management and synergy creation to mitigate risks associated with market entry and capitalize on synergies, economies of scope, and cross-selling opportunities.
    • Companies leverage their existing brand equity, distribution channels, and customer relationships to introduce new products or services that resonate with target customers and enhance overall value proposition, driving revenue growth and market penetration.
  3. Innovation and Differentiation:
    • Concentric diversification fosters innovation and differentiation by leveraging the company’s expertise, technology platforms, and R&D capabilities to develop new products or solutions that address unmet customer needs or emerging market trends.
    • Companies invest in research, development, and product innovation to create distinctive offerings that differentiate them from competitors, drive customer loyalty, and sustain long-term growth in related markets or industries.

Key Features of Concentric Diversification:

  • Market Synergies and Cross-Selling Opportunities:
    • Concentric diversification capitalizes on market synergies and cross-selling opportunities by leveraging the company’s existing customer base, distribution channels, and brand equity to introduce complementary products or services.
    • Companies bundle offerings, create product ecosystems, or introduce adjacent products that enhance customer value, drive incremental sales, and strengthen relationships with customers, maximizing revenue potential and market share.
  • Technology Integration and Scalability:
    • Concentric diversification integrates technology platforms and capabilities to facilitate scalability, interoperability, and seamless integration of new products or services with existing offerings.
    • Companies leverage common technology platforms, modular architectures, or interoperable systems to accelerate time-to-market, reduce development costs, and enhance agility in responding to changing market demands, driving innovation and competitiveness.
  • Brand Extension and Market Penetration:
    • Concentric diversification extends the company’s brand into related markets or industries, leveraging brand equity, trust, and recognition to penetrate new markets and gain acceptance among target customers.
    • Companies leverage their brand reputation, quality standards, and customer loyalty to establish credibility, differentiate offerings, and capture market share in related markets or industries, driving brand extension and market expansion.

Benefits of Concentric Diversification:

  • Revenue Growth and Market Expansion:
    • Concentric diversification drives revenue growth and market expansion by tapping into related markets or industries that offer growth opportunities, cross-selling potential, and synergies with the company’s existing products or services.
    • Companies that pursue concentric diversification can leverage their core competencies, distribution channels, and customer relationships to penetrate new markets, capture market share, and increase sales volumes, driving top-line growth and profitability.
  • Risk Mitigation and Diversification:
    • Concentric diversification mitigates risks associated with market volatility, cyclical downturns, or competitive pressures by diversifying revenue streams and reducing dependence on a single product or market segment.
    • Companies that diversify concentrically can spread risk across multiple markets or industries while leveraging synergies, economies of scope, and cross-selling opportunities to enhance overall resilience and sustainability in dynamic and challenging business environments.
  • Strategic Focus and Competitive Differentiation:
    • Concentric diversification enhances strategic focus and competitive differentiation by aligning the company’s resources, capabilities, and investments with related markets or industries where it can leverage its core strengths and expertise.
    • Companies that pursue concentric diversification can differentiate themselves from competitors, capture market share, and drive customer loyalty by offering complementary products or services that enhance overall value proposition and address evolving customer needs and preferences.

Challenges of Concentric Diversification:

  • Market Segmentation and Differentiation:
    • Concentric diversification requires careful market segmentation and differentiation to identify target customer segments, understand their needs, and develop tailored offerings that resonate with their preferences and priorities.
    • Companies must conduct market research, competitive analysis, and customer insights to identify niche opportunities, assess competitive dynamics, and differentiate their offerings effectively in crowded or mature markets, ensuring relevance and acceptance among target customers.
  • Integration and Cultural Alignment:
    • Concentric diversification entails integration and cultural alignment challenges when entering new markets or industries, as companies must align processes, systems, and organizational cultures to support successful integration and synergy realization.
    • Companies must foster collaboration, communication, and teamwork across functional areas, business units, and geographic regions to facilitate smooth integration, minimize disruption, and maximize value creation from concentric diversification initiatives.
  • Technology Complexity and Interoperability:
    • Concentric diversification involves technology complexity and interoperability challenges when integrating new products or services with existing technology platforms, systems, or architectures.
    • Companies must ensure compatibility, scalability, and interoperability of technology solutions to enable seamless integration, data exchange, and workflow automation, minimizing technical risks and optimizing performance in cross-functional or cross-platform environments.

Case Studies of Concentric Diversification:

  1. Google (Alphabet Inc.):
    • Google diversifies concentrically by expanding its product portfolio beyond search and advertising into related markets such as cloud computing, artificial intelligence, and hardware devices.
    • Alphabet Inc., Google’s parent company, leverages its expertise in data analytics, machine learning, and user experience to develop new products and services that enhance its ecosystem, drive user engagement, and generate new revenue streams, diversifying its business while reinforcing its market leadership in digital technology and innovation.
  2. Apple Inc.:
    • Apple diversifies concentrically by extending its product ecosystem beyond iPhones and Macs into related markets such as wearables, services, and digital content.
    • Apple leverages its design prowess, ecosystem integration, and brand loyalty to introduce new products and services that complement its existing offerings, enhance customer value, and drive revenue growth, expanding its reach and relevance across different consumer segments and lifestyle categories.
  3. Amazon.com, Inc.:
    • Amazon diversifies concentrically by expanding its e-commerce platform beyond retail into adjacent markets such as cloud computing, logistics, and digital entertainment.
    • Amazon leverages its scale, infrastructure, and customer data to launch new businesses and services that capitalize on emerging trends, disrupt traditional industries, and create synergies with its core e-commerce operations, driving revenue diversification and market expansion while reinforcing its position as a global technology and retail powerhouse.

Conclusion:

Concentric diversification is a strategic growth strategy that enables companies to expand into related markets or industries by leveraging their core competencies, technologies, and customer base. By identifying adjacent opportunities, capitalizing on synergies, and offering complementary products or services, companies can drive revenue growth, mitigate risks, and strengthen their competitive position in dynamic and evolving markets. While challenges such as market segmentation, integration complexity, and technology interoperability exist, the benefits of concentric diversification include revenue expansion, risk diversification, and strategic differentiation. Through strategic planning, market analysis, and execution excellence, companies can successfully execute concentric diversification initiatives, capitalize on growth opportunities, and create sustainable value for stakeholders in an increasingly interconnected and competitive business landscape.

Related ConceptsDescriptionWhen to Consider
Horizontal DiversificationHorizontal Diversification is a strategy where a company expands its product or service offerings into new markets or segments that are directly related to its existing business activities. Unlike concentric diversification, which involves entering new markets with related products or services, horizontal diversification focuses on entering unrelated markets with new products or services that appeal to existing customers or leverage the company’s core competencies and resources. Horizontal diversification aims to spread risk, capture new revenue streams, and capitalize on market opportunities outside the company’s current industry or customer base. Understanding horizontal diversification provides insights into market expansion strategies, competitive positioning, and diversification risks and opportunities in different industries and market environments.When discussing corporate strategy and business expansion, particularly in understanding how companies diversify their product or service offerings to enter new markets or segments, and in exploring the opportunities and challenges associated with horizontal diversification, such as market entry barriers, competitive dynamics, and resource allocation considerations, and in exploring the implications of horizontal diversification for business growth, risk management, and shareholder value creation in various industry sectors and competitive landscapes.
Vertical IntegrationVertical Integration is a strategy where a company expands its operations or control over the supply chain by acquiring or merging with businesses involved in different stages of the production or distribution process. It can involve backward integration, where a company acquires suppliers or raw material producers, or forward integration, where a company acquires distributors or retailers. Vertical integration aims to streamline operations, reduce costs, improve efficiency, and gain greater control over quality, pricing, and distribution channels. It can also enhance strategic flexibility, reduce dependency on external suppliers or intermediaries, and capture more value along the supply chain. Understanding vertical integration provides insights into supply chain management, strategic alliances, and competitive dynamics in various industries and market structures.When discussing supply chain management and corporate strategy, particularly in understanding how companies optimize their operations and control over the value chain through vertical integration, and in exploring the motivations and risks associated with vertical integration strategies, such as economies of scale, bargaining power, and regulatory considerations, and in exploring the implications of vertical integration for industry competitiveness, market structure, and strategic positioning in different sectors and global markets.
Market DevelopmentMarket Development is a growth strategy where a company seeks to expand its customer base or penetrate new market segments or geographic regions with existing products or services. It involves identifying and targeting untapped market opportunities, adapting marketing strategies, and entering new markets with existing offerings to attract new customers or increase market share. Market development may involve entering new geographic regions, demographic segments, or distribution channels, or targeting underserved or niche market segments with tailored marketing campaigns or product modifications. Market development allows companies to capitalize on existing product strengths or brand recognition to drive revenue growth and diversify customer base. Understanding market development provides insights into market entry strategies, customer segmentation, and expansion opportunities in domestic and international markets.When discussing marketing strategy and business expansion, particularly in understanding how companies identify and enter new market segments or geographic regions with existing products or services, and in exploring the strategies and tactics for market development, such as market research, product localization, and channel partnerships, and in exploring the implications of market development for revenue growth, brand awareness, and competitive positioning in different markets and industry sectors.
Product DevelopmentProduct Development is the process of conceptualizing, designing, and bringing new products or innovations to the market. It involves identifying market opportunities, conducting market research, generating product ideas, prototyping, testing, and refining product concepts before commercialization. Product development aims to create offerings that meet customer needs, address market gaps, or capitalize on emerging trends or technologies, thereby driving revenue growth and competitive advantage for the company. Successful product development requires cross-functional collaboration, creativity, market insights, and effective project management to bring products from concept to launch successfully. Understanding product development provides insights into innovation management, new product strategies, and the stages and processes involved in bringing products to market.When discussing innovation management and new product strategies, particularly in understanding how companies innovate and develop new products to meet market demands and stay competitive, and in exploring the stages and processes involved in product development, from idea generation to commercialization, and in exploring the factors influencing successful product innovation and launch in different industries and market environments.
Market PenetrationMarket Penetration is a growth strategy focused on increasing market share and sales volume for a product or brand within existing markets. It involves expanding the customer base, encouraging repeat purchases, or capturing a larger share of customer spending by intensifying marketing efforts, lowering prices, or improving distribution channels. Market penetration aims to drive sales growth by attracting new customers or increasing usage among existing customers, thereby solidifying the product’s position in the market and outpacing competitors. Understanding market penetration provides insights into customer acquisition strategies, pricing tactics, and distribution channel management to drive market share expansion and revenue growth in competitive markets.When discussing growth strategies and market expansion, particularly in understanding how companies increase their market share and sales volume within existing markets, and in exploring the tactics and approaches used to penetrate markets, attract customers, and drive product adoption and usage, and in exploring the implications of market penetration for competitive dynamics, profitability, and brand positioning in various industries and market segments.
Innovation StrategyInnovation Strategy is a systematic approach that guides a company’s efforts to create, develop, and implement innovative ideas, technologies, or business models to drive growth, competitive advantage, and value creation. It involves setting clear objectives, allocating resources, fostering a culture of creativity and experimentation, and leveraging internal and external capabilities to generate breakthrough innovations or incremental improvements across different areas of the business. Innovation strategy aligns with the company’s overall goals and market opportunities, shaping its investment priorities, R&D initiatives, and partnerships to stay ahead of market trends and customer needs. Understanding innovation strategy provides insights into the drivers and enablers of innovation, the processes and methods for fostering innovation, and the strategies for managing risks and maximizing returns on innovation investments.When discussing strategic management and business innovation, particularly in understanding how companies develop and implement innovation strategies to drive growth and competitive advantage, and in exploring the factors influencing innovation success, such as organizational culture, leadership support, and market dynamics, and in exploring the implications of innovation strategy for product development, market positioning, and long-term sustainability in different industries and business environments.
Brand ExtensionBrand Extension is a marketing strategy where a company leverages its existing brand name and equity to launch new products or enter new product categories. It involves extending the brand’s identity, reputation, and associations to new offerings, capitalizing on consumer trust, loyalty, and recognition built around the parent brand. Brand extension allows companies to diversify their product portfolio, reach new market segments, and capitalize on existing brand equity to reduce marketing costs and risks associated with launching entirely new brands. Understanding brand extension provides insights into brand management strategies and the factors influencing consumer perceptions and acceptance of brand extensions.When discussing brand management and marketing strategy, particularly in understanding how companies leverage existing brand equity to enter new markets and product categories, and in exploring the opportunities and challenges associated with extending brand identity and associations to new offerings while maintaining brand coherence and integrity.
Mergers and AcquisitionsMergers and Acquisitions (M&A) is a corporate strategy involving the consolidation of companies through various transactions such as mergers, acquisitions, or strategic partnerships. M&A deals enable companies to expand their market presence, diversify product offerings, achieve economies of scale, or gain access to new technologies, markets, or talent. M&A transactions can take different forms, including horizontal mergers between competitors, vertical integration with suppliers or distributors, or conglomerate mergers diversifying into unrelated industries. M&A strategies aim to create synergies, enhance competitive positioning, and generate value for shareholders through strategic alliances or integration efforts. Understanding M&A provides insights into deal structures, due diligence processes, and the strategic considerations driving corporate consolidation and business combinations.When discussing corporate finance and strategic management, particularly in understanding how companies pursue growth and expansion through mergers and acquisitions, and in exploring the motives and benefits of M&A transactions, such as market consolidation, cost synergies, and strategic alignment, and in exploring the challenges and risks associated with M&A, such as integration complexities, cultural differences, and regulatory compliance in different industries and market conditions.
Blue Ocean StrategyBlue Ocean Strategy is a strategic approach that focuses on creating uncontested market space or “blue oceans” by developing innovative products or services that offer unique value to customers and differentiate the company from competitors. It involves identifying and exploiting untapped market opportunities, redefining industry boundaries, and challenging conventional market norms to create new demand and growth opportunities. Blue Ocean Strategy emphasizes value innovation, which involves simultaneously pursuing differentiation and low cost to break the trade-off between value and price, thereby unlocking new market space and driving profitable growth. Understanding Blue Ocean Strategy provides insights into market innovation, competitive strategy, and value creation strategies in dynamic and evolving market environments.When discussing strategic management and business innovation, particularly in understanding how companies create new market space and drive growth through value innovation, and in exploring the principles and tools of Blue Ocean Strategy, such as value curve analysis, six paths framework, and strategy canvas mapping, and in exploring the implications of Blue Ocean Strategy for market positioning, competitive advantage, and sustainable growth in different industries and market contexts.
Core CompetenciesCore Competencies are unique strengths, capabilities, or strategic assets that distinguish a company from competitors and enable it to deliver superior value to customers. Core competencies may include technical know-how, proprietary technologies, innovative processes, or distinctive capabilities in areas such as research and development, marketing, or customer service. Core competencies serve as the foundation for competitive advantage and strategic differentiation, allowing companies to outperform rivals, enter new markets, and sustain long-term growth. Identifying and leveraging core competencies is essential for strategic planning, resource allocation, and organizational development to capitalize on internal strengths and exploit market opportunities effectively. Understanding core competencies provides insights into competitive positioning, business strategy, and sustainable value creation in different industries and market environments.When discussing strategic management and competitive strategy, particularly in understanding how companies leverage their core competencies to achieve competitive advantage and drive business success, and in exploring the process of identifying, nurturing, and leveraging core competencies, and in exploring the role of core competencies in shaping corporate strategy, resource allocation, and organizational capabilities to sustain long-term growth and competitive positioning in dynamic market environments.

Read Next: Porter’s Five Forces, PESTEL Analysis, SWOT, Porter’s Diamond Model, Ansoff, Technology Adoption Curve, TOWS, SOAR, Balanced Scorecard, OKR, Agile Methodology, Value Proposition, VTDF Framework.

Connected Strategy Frameworks

ADKAR Model

adkar-model
The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and whether the product is new or existing.

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

lean-startup-canvas
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Blue Ocean Strategy

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

GE McKinsey Model

ge-mckinsey-matrix
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.

McKinsey 7-S Model

mckinsey-7-s-model
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.

McKinsey’s Seven Degrees

mckinseys-seven-degrees
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.

McKinsey Horizon Model

mckinsey-horizon-model
The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

Porter’s Generic Strategies

competitive-advantage
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.

Porter’s Value Chain Model

porters-value-chain-model
In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.

Porter’s Diamond Model

porters-diamond-model
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

PESTEL Analysis

pestel-analysis

Scenario Planning

scenario-planning
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

STEEPLE Analysis

steeple-analysis
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

Main Guides:

More Resources

Scroll to Top

Discover more from FourWeekMBA

Subscribe now to keep reading and get access to the full archive.

Continue reading

FourWeekMBA