Lessons learned: The bumpy road to diversification

Companies diversify for a multitude of reasons – an opportunity to grow, an organic expansion into another a related market, or a need to establish new revenue streams. And sometimes this can yield incredible success. Apple is an example of one of the greatest product diversifications in history – its expansion into the portable media, online music and smartphone markets propelled the company to stratospheric success.

But for every iPod there is a Zune.

Microsoft’s attempt to match Apple’s success in the portable media space crashed and burned quickly. It is easy to see how Microsoft assumed it could also penetrate the music device market. It had global brand awareness, market domination in the software space and a shared history with Apple. In many ways it must have seemed like a logical progression. And yet it failed fast.

While we can point the finger of blame at late entry to a market already dominated by a competitor, it is also arguable that Microsoft just made too many assumptions regarding what it would take to be successful.

Another more recent example is Google Glass. Unveiled in 2012 to much fanfare, it was positioned as the ”must have” gadget, dominating the business media and even the catwalk. But the hype quickly dissipated when reviewers got hold of the product and concerns around privacy were raised. Fast forward to 2015, Google cut the cord and announced the closure of its Glass Explorer program.

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Attempts to diversify are a natural byproduct of growth, but companies should heed the lessons learned from the many that have tried and failed. After all, if brands as powerful and globally resonant as Google and Microsoft can struggle to diversify, companies of any size can and probably will.

So before jumping into an aggressive diversification initiative, companies would do well to first consider the following principles:

Don’t make easy assumptions about the power of your brand

Just because a company has achieved success in one area doesn’t mean it will in another. Customers ultimately buy into a product or service, not a brand. While they can build up trust over time, and even form an emotional attachment to a brand, that loyalty is not exclusive nor is it permanently binding – not even for Apple.

Diversify in areas where it makes sense as part of the brand’s overall value proposition

Despite market domination in their respective markets, Google and Microsoft couldn’t translate that loyal and captive audience in other areas. The move into accessories or devices just didn’t resonate with the perception consumer had of these brands. They were leaps too far at the time.

Making up for declining growth in your core business or attempting to keep up with the next big thing are not good reasons to diversify

Stop and assess whether the pivot to another market makes sense as part of your overall business strategy. Ask yourself whether your company can afford the investment required to effectively “rebrand.” Above all, don’t assume your current good standing with customers or the media will automatically translate to future ventures.

For other terrific diversification tips, click here and here.