- Kodak went bankrupt in 2012 as it failed to extend its core market of photography
- Airbnb survived and thrived during Covid with its online experience category diversification
- Apple scaled its business to $20b with its services like icloud, apple music and more.
Why revenue diversification is important and how market leaders achieved it?
- Reduces Risk and uncertainty of market volatility – Diversification of products, services or geographies helps business in reducing the market uncertainty. Considering the macro-economic conditions and volatility of the market, one or few products or services can be at risk of losing demand due to number of external factors. For example: Undergoing wars across few countries is leading to disability in the market economic conditions and impacting the demand supply chain for certain products & services. Recently, the China potential war with Taiwan caused uncertainty in semi-conductor market leading to huge loss in electronic industry.
Case in Point – Kodak’s death moment due to failed diversification strategy!
Kodak went bankrupt in 2012 due to the rise of digital photography after pioneering the technology years before competitors.
Kodak failed to extend its core market of photography, where losses started slowly then accelerated rapidly. In 1976, Kodak had 90% market share in the US film market. In the 1980s, Kodak lost ground to its Japanese competitor Fujifilm. Kodak failed to expand to adjacent markets. In the 2000s, Fujifilm responded to declining photography revenues by producing Astalift, a line of skin-care products that used the same antioxidant technology it had developed for its photographic film.
Source: The Economist, “The last Kodak moment?”
- Helps scale your business after a certain limit – When existing markets or products hit saturation, diversification allows businesses to tap into untapped opportunities. Relying too heavily on a single market or product makes businesses vulnerable to economic downturns, market shifts, or industry disruptions.
Case in Point: Apple’s Services Revenue Growth:
Apple’s diversification into services (like iCloud, Apple Music, and the App Store) has turned this segment into a $20 billion per quarter business, reducing dependency on iPhone sales and contributing to consistent revenue growth.
- Enhanced Financial Stability
Multiple revenue streams provide a more consistent and predictable cash flow. This financial stability allows businesses to weather economic challenges, invest in growth opportunities, and maintain operations without disruption.
Case in Point: How LEGO Reinvented Itself and Thrived with technology
LEGO, the iconic toy manufacturer, offers another compelling story of successful market diversification. After witnessing a decline in traditional toy sales and increasing competition, LEGO strategically shifted gears around 2017, focusing on digital platforms. The launch of LEGO Life, a social app for children, integrated play with technology and empowered users to share their creations online. This evolution allowed LEGO to engage a younger audience familiar with technology while rekindling interest in its physical products. Impressively, over 8 million children signed up for the app within its first year.
- Fosters innovation & agility for change – Diversification enables companies to stay ahead of market trends and shifts by experimenting in future-oriented sectors such as AI, sustainability, or digital transformation.Businesses with diversified operations are better equipped to pivot during disruptions. For example, companies with both physical and digital channels can quickly shift focus to e-commerce during events like the pandemic.
Case in Point: The Case of Airbnb’s Business Model Evolution
When the COVID-19 pandemic struck in 2020, Airbnb faced existential challenges. With travel restrictions in full swing, the company saw bookings plummet by nearly 96% at one point. Instead of cowering, Airbnb diversified its offerings to adapt to changing market conditions, launching Airbnb’s Online Experiences. This innovation allowed hosts to offer virtual activities—from cooking classes to guided tours—capitalizing on the growing trend of virtual engagement. By late 2021, after a tumultuous period, Airbnb reported a 300% increase in online bookings for these experiences compared to pre-pandemic levels. This case emphasizes the importance of agility during crises and encourages organizations to anticipate consumer needs, even in challenging times.
Approach to Diversification
The ANSOFF Matrix is a vital tool for strategic planning. It helps CEOs identify potential growth opportunities. This matrix offers a structured approach to diversification.
The ANSOFF Matrix consists of four strategies:
- Market Penetration
- Market Development
- Product Development
- Diversification
These strategies guide businesses in selecting the best path forward. Each approach has its own risks and rewards. CEOs can use this framework to analyze their options. This allows for informed decision-making and effective risk management.
The flip side: the larger is not always better
Market Penetration: Maximizing Existing Markets
Market penetration focuses on increasing sales in existing markets. This strategy involves improving current offerings or pricing strategies. Businesses aim to boost their market share without changing products.
It often requires more aggressive marketing and competitive pricing. Market penetration is a safer strategy since it deals with familiar markets. It can lead to quick wins but requires careful management to avoid over-saturation.
Market Development: Exploring New Markets
Market development involves entering new markets with existing products. This could mean geographic expansion or targeting new customer segments. It’s an effective way to leverage current products for growth.
Understanding local needs and cultural preferences is essential. Thorough research and strategic planning are crucial for success. This approach opens the door to untapped potential and new opportunities. However, it requires a keen awareness of market dynamics and competition.
Product Development: Innovating Your Offerings
Product development focuses on creating new products for existing markets. Companies innovate to meet changing customer needs. This approach demands creativity and investment.
Investment in research and development is crucial. Introducing new products can secure market leadership and enhance brand loyalty. It’s a strategy that aligns closely with modern innovation trends. Product development strengthens a company’s position by expanding its portfolio.
Diversification: Venturing into New Domains
Diversification means branching into completely new areas. Businesses create new products for new markets. This ambitious strategy can bring high rewards but higher risks as well.
It requires thorough evaluation and strategic partnerships. Diversifying allows companies to tap into new revenue streams and reduce dependency on the core business. It’s vital to ensure these ventures align with the company’s vision. Engaging in diversification requires a robust implementation plan to manage complexity.
When to Diversify: Timing is Everything
- When market size is limited – Ifyour primary market is nearing saturation or has natural constraints (e.g., niche customer base or geographical limits), growth will stagnate. Diversify into adjacent markets or products to unlock new opportunities and maintain growth momentum.
- When you are already penetrated a specific service – Once your business dominates a particular service, opportunities for incremental growth may diminish. Relying too heavily on one offering makes you vulnerable to competition and market shifts. Build on your expertise to offer complementary services or expand into new sectors.
- When your revenue target is ambitious – If your growth goals outpace the potential of your existing markets or services, diversification becomes necessary to achieve those targets. Pursue new revenue streams through product innovation, geographic expansion, or partnerships.
Timing is crucial when considering diversification. Entering too early or too late can impact success. Assess market trends and competition first to gauge the right moment.
Diversification often shines when growth slows or markets saturate. Watch for signs of a maturing industry or evolving consumer needs. External economic factors and internal capabilities should also guide timing decisions. Keeping a strategic foresight can help pinpoint the ideal time to diversify, ensuring alignment with market dynamics and organizational readiness.
Implementing Diversification: A Step-by-Step Guide for CEOs
Implementing diversification requires a structured approach. CEOs should outline a clear, actionable plan to ensure success in new ventures. This process includes evaluating, planning, and execution.
A detailed action plan keeps efforts aligned with company objectives. Start by reviewing internal resources and market opportunities. Follow these steps for effective implementation:
- Define clear objectives based on thorough research.
- Develop a timeline and allocate resources.
- Execute the plan with a focus on continuous improvement.
Regularly assess performance against set benchmarks. Adjust the strategy as needed to address changing market conditions or unforeseen challenges.
Evaluating Potential Revenue Streams
Assessing new revenue streams involves thorough analysis. CEOs must identify viable opportunities that align with strategic goals. This evaluation uncovers the best paths forward.
Key aspects to consider are market demand and competitive landscape. Weigh the financial implications and required resources. This analysis supports informed decision-making and enhances the chance of success.
Aligning Diversification with Company Vision
Diversification should align with the overall company vision. CEOs need to ensure that new ventures reflect core values. This alignment maintains brand integrity.
A strategic fit between diversification efforts and company culture is vital. It fosters innovation while preserving operational harmony. Aligning these aspects ensures cohesiveness and long-term success.
Key Strategies to diversify
Bundle Your Services – Combine complementary offerings to create value-driven packages, making it easier for customers to choose your services. Example: Pair consulting services with digital tools like analytics dashboards to provide an end-to-end solution.
Market Penetration – Focus on gaining more share in existing markets through competitive pricing, promotional campaigns, or improved service delivery.
Product Penetration – Introduce new or improved products/services to existing customers. Example: If you offer CRM software, expand into offering AI-driven analytics for customer insights.
Geo Penetration – Expand into new geographic regions, targeting untapped markets. Strategies include local partnerships, adapting offerings for regional needs, or setting up regional offices.
Partnerships & Alliances – Collaborate with other businesses to co-develop solutions or access each other’s customer bases. Example: Partner with a fintech company to offer embedded finance solutions in your services.
Inorganic Scale via Acquisitions – Acquire companies with complementary products or access to new markets. Example: Purchase a niche SaaS platform to diversify your digital transformation portfolio.
Some groundbreaking insights from the leaders via Linkedin research:
Rochelle Mountany | Follow
CEO | AfriGIS
A great way to capture existing markets is through partnerships with businesses who already have access to these markets. Through conceptualising a win-win package with your offer to their customer base, you set not only your own business up for exponential growth through quick access to an existing customer base, but also enable to business you partner with to offer greater value to their customers, increasing their share of wallet and reducing customer churn in the process.
Marcia Murphy, CHIA, CAHTA, CHSE
Business Strategist
Leveraging data to implement strategies that drive revenue is a solid approach. However, a key skill is the ability to extract trends or opportunities and succinctly communicate them to the team and executive leaders. Further, a clear understanding of the company’s data analytics architecture and interfaces is important to ensure data is valid and reliable. If your analytics tools are not integrated, mapped accordingly, or providing real time updates, then confidence and speed to leveraging data will be compromised.
Ethel Cofie
Non Executive Director | Board Advisory on Digital Transformation | Author | Fintech | Tech Policy | Technology and Innovation Consulting | President Barack Obama YALI Fellow
Expanding reach isn’t just about tapping new markets; it’s also about reimagining how you present your offerings. One innovative approach is through collaborative partnerships, joining forces with non-competing businesses to offer complementary services. Additionally, embracing localization strategies in new markets can be pivotal. Tailoring your offerings to meet local tastes, languages, and cultural nuances makes your product more appealing and can increase market acceptance. Don’t overlook the power of community building – engaging with local communities can create a loyal customer base and turn users into ambassadors. This blend of strategic partnerships, localization, and community engagement can amplify your presence in new markets.
Greg Ravilious
Helping brands communicate with specific audiences and acquire new customers
Always offer value – for repeat business and a sustainable business, you always have to offer value. Think of yourself as the end user or purchaser, and think about what you would want to receive and times (sometimes in unconnected industries) when you have felt valued and believe you have received good value. We can learn so much from our every day lives and implement into our business.
Source: https://www.linkedin.com/advice/0/what-some-innovative-ways-create-new-revenue-czmoc
Conclusion: The CEO’s Role in Leading Diversification
The CEO plays a crucial role in steering successful diversification. They set the tone for strategic growth and innovation within the company. Effective leadership requires clarity, vision, and adaptability in navigating new challenges.
As a pivotal figure, the CEO must inspire a culture open to change. They are responsible for aligning the team with the diversification strategy. Their guidance ensures that new ventures are consistent with the company’s broader goals and values.
How Worxwide can help in market discovery & building new revenue streams?
Worxwide deep expertise in market research and design thinking approach helps customers identify new revenue streams. We can help in primary and secondary research to identify white-space opportunities and build business case for new revenue streams.
- Primary and Secondary Research
- White-Space Opportunity Identification
- Business Case and Feasibility Analysis
- Market Entry Analysis
- Digital Transformation for New Revenue Streams
About Worxwide
Worxwide is a digital growth consulting firm offering user experience, customer experience, AI led CX, growth strategy, sales transformation, sales automation and bids & proposals. Reach out our growth experts at https://worxwide.com/growth-consulting/
