Term Paper on "Diversification Strategies"

Term Paper 5 pages (1782 words) Sources: 5

[EXCERPT] . . . .

Diversification Strategies

The Ansoff matrix gives diversification as one of the four key strategies of growth for a company. According to Ansoff, diversification as a strategy is quite different from the other three. The strategies of product development, market penetration and market development are usually handled from a technical, merchandising and financial perspective by using the same resources that are available in the company. However, the diversification strategy needs the acquisition of a new set of resources. These include new techniques, new skill and modern facilities. Ansoff pointed out that in diversification, the notion that the product or service in itself is new need not be applicable to the managers. Rather it should apply to the consumers of the products or services. When new products or services are created, they tend to encourage the acquisition of new markets for the company, market penetration and product development. Therefore, the other three strategies can appear as a result of diversification Ansoff, 1957.

Diversification is the same as the strategy of differentiation that was stated by Michael Porter, 1987()

Successful diversification case study

In terms of diversification, there are many companies that have successfully applied the diversification strategy, and they have managed to gain improved market share and to increase revenues and profits substantially. An outstanding example is Virgin Atlantic. Virgin Atlantic managed to gain popularity in a market that was full of huge airlines such as Delta Airlines, United Airlines and U.S. airways by using the diversification strategy. The company managed to emerge as the preferred carrier for short-haul flights since they were the cheapest and offered no-frills operations. As a result of this, Virgin Atlantic became a huge player in the airline industry since most of the larger airlines that were present had not diversified their product. Virgin Atlantic also managed to use the same strategy in Europe and was able to gain huge market share in a market that had larger players such as Brussels Airlines, British Airways and Cathay Pacific.

Virgin Atlantic positioned itself as a budget airline. Virgin Atlantic is part of the Virgin Group which is a private limited liability company founded by Sir Richard Branson in 1970 but was incorporated in 1989. Virgin Atlantic itself was founded in the year 1984 but commenced operations on the 22nd day of the month of June of the same year. It currently has a fleet size of 37 and flies to about 35 destinations across the world. Its headquarters are in Crawley in the United Kingdom. According to their 2011 financial results, the company's revenue was 2.7 billion pounds while the operating income was 18.5 million pounds Branson, 2006()

In the year 2010, the airline carried over 5 million passengers and was then named the eighth largest airline in the UK on the basis of the number of passengers carried. In the year ending February 2010, the airline had a turnover of 2.357 billion pounds. In as much as the turnover was this high, the airline made a loss of 132 million pounds.

Virgin Atlantic flies to destinations in the UK, Australia, the Caribbean, North America, Middle East, Africa, and Asia. The airline has its base at the London Heathrow airport and Gatwick airport and uses a mixed fleet of airplanes consisting of Boeing and Airbus jets which have an average age of 9.1 years as of the month of December in the year 2011. Virgin Atlantic started from humble beginnings with Richard Branson testing to see if he could become profitable in the first year. If he was not, he was to leave the market. Virgin Atlantic turned profitable in its first year, and funding was arranged to expand its fleet through Virgin Records, its sister company.

Virgin Atlantic has integrated online sales and the internet as their major instrument of tickets sales. This has also helped them to reduce expenses such as ticket sales staff and other expenses associated with offline sales Halmen, 2006()

There are many reasons that led to the success of Virgin Atlantic. One is that Virgin Atlantic always uses an assortment of designs for their airplanes. Virgin Atlantic has a design team that consists of 15 people who work closely with the airline's chief executives to implement design projects. The designers on the team are multi-skilled and can handle architecture, interior design, product and industrial design. The designers are tasked with the creation of unique elements which make Virgin Atlantic stand out from the rest of the pack. For example, in November of 2006, the company installed wider seats into their economy class which also provided ports to power laptops. They also have lumbar support. Their business class also has the industry's largest fully flatbed seat with laptop power, lumbar support, and power leads for iPods. They also offer inflight entertainment. These products distinguish Virgin Atlantic from other airlines and have helped the airline gain competitive advantage Halmen, 2006()

Secondly, Virgin Atlantic has vastly managed to be a cost leader by reducing their expenditure. This is done by, for example, maintaining aircraft operation and maintenance costs low by ensuring they are always running efficiently. The company also has base rate salaries for employees and offer performance-based compensation. The company also strives to keep airport charges down by choosing cheaper options. The company also keeps costs low by performing their sales operations online instead of the traditional offices, and this has helped them to keep costs of marketing and sales operations low.

The third reason is that Virgin Atlantic handles most of their supply demands in house. Virgin Atlantic does not outsource most of its activities, therefore, they have taken control of their procurement and supply chains, for example, they have their own catering and ticketing services. Also, Virgin Atlantic buys goods in large quantities and thus they enjoy economies of scale for their products Balmforth, 2009()

Unsuccessful diversification case study

Of the Virgin Group, there are also several companies that have failed as a result of not implementing the diversification strategy correctly. Virgin Cars, Virgin Cola, Virgin Clothes, Virgin Money, Virgin Blue, and Virgin Trains are excellent examples. For the sake of diversification, we will go with Virgin Cars. Virgin Cars was to be the flagship brand of the Virgin Group in terms of car sales. According to the business plan, it was estimated that the company would sell over 24,000 cars in its first year of operation and thus generating a turnover of over 300 million pounds. However, to the amazement of Branson and Ian Lancaster who were the co-founders, the company only sold 2,000 cars for the year ending October 2,000 which generated revenue of just about 30 million pounds which was a meager 10% of the overambitious estimate that Richard Branson had imagined Keeling, 2006()

In the next year, the company diversified their products to include bikes. However, this did not improve the situation. Three years later, in 2003, the company had only sold 12,000 cars and bikes in total for all the three years. This was half of the target that had been placed for just the first year of the company Keeling, 2006()

In the year 2005 as sales continued to dwindle well below expectations, the cofounders decided to wind up operations and closed Virgin Cars. This signaled the end of the company and all trading. The building which was occupied by Virgin Cars was also stripped of all the branding that was present. Dominic, 2006(; Keeling, 2006)

Virgin Cars stocked cars from different manufacturers and grouped them based on themes such as thrill cars, adventure cars, and crowd pleasers. Though majorly the company was targeted at online sales, they opened 3 stores where customers could visit to see what they were about to purchase or what they had purchased or even to get more information Dominic, 2006()

There are several reasons that led to the failure of Virgin Cars. One is the speed in which the launch of the company was done. The company went to a full-fledged company from the drawing board within just under 6 months. All aspects of the company were set up during this time. This speed did not give the cofounders enough time to handle all logistics and did not allow them to pay enough attention to detail to make sure every important angle was covered.

The second reason was that Virgin Cars was attempting to change a long standing tradition which was almost impossible. This tradition was that car sales were handled by the manufacturers themselves and that buyers did not prefer dealing with retailers or intermediaries.

The third reason is that the company had one of its showrooms in Pendleton located in an area that provided steep competition from two other showrooms that were within 50 yards. This made the store experience extremely low sales since the other showrooms provided steep competition.

Another key reason that led to the collapse of Virgin Cars was that it was designed to be the cost leader in car sales by selling a large… READ MORE

How to Reference "Diversification Strategies" Term Paper in a Bibliography

Related Term Papers:

HRM Issues Diversification Strategies Thesis

HRM Issues/Diversification Strategies

The company under analysis consists in a medium size call centre providing assistance for a variety of other companies operating in more than two different business sectors.… read more

Thesis 3 pages (994 words) Sources: 1+ Style: APA Topic: Business / Corporations / E-commerce

---

Microsoft's Diversification Strategy Research Proposal

Microsoft Diversification Strategy

Define the competitive rivalry that Microsoft can anticipate in its business units.

Each of the three Microsoft divisions mentioned in the case study, the Platform Products and… read more

Research Proposal 5 pages (1450 words) Sources: 0 Style: APA Topic: Computers / IT / Internet

---

Diversification Strategy of Number of Stocks to Maximize Returns and Minimize Risks Research Proposal

Data Collection

The project will collect 10-year historical data from the DataStream and select different stocks from different industries using diversification strategy to choose the best investment that can deliver… read more

Research Proposal 2 pages (683 words) Sources: 1 Topic: Literature / Poetry

---

Optimization of Stocks Investment Diversifications Strategy to Maximize Returns and Minimize Risks Research Paper

Thus, the study collects 8-year data of the diversified stock portfolios between 2007 and 2014 from the DataStream. The rate of 1 year Treasury bill is collected from the government… read more

Research Paper 10 pages (2308 words) Sources: 1+ Style: Let the writer choose Topic: Literature / Poetry

---

Foreign Market Entry and Diversification Essay

Foreign Market Entry Strategies for Applebee's

Together with International House of Pancakes, Applebee's is owned by DineEquity, Inc. And competes in the casual dining industry. In recent years, Applebee's International,… read more

Essay 4 pages (1027 words) Sources: 4 Style: APA Topic: Business / Corporations / E-commerce

---

View 100+ more related papers  >>