Guest Contributor, ALEX PAPA
Several experts suggest that internet-based businesses should maintain focus on fulfilling the needs of their target market. This advice stems from the idea that a business should “stick to what it knows best” and not deviate into unfamiliar territory. At the same time, understanding how diversification might benefit an online business—especially in terms of maintaining liquidity and mitigating risk in an economic downturn—is enough of a reason to investigate how diversification might work for you. This article outlines three methods an online business can adopt to diversify its assets, products and customer base.
Related diversification
“Related diversification” means a company invests in products and services that hold a direct relation to what it already provides its customers. Put another way, related diversification takes what a company already does, and offers a “premium” level of service or product at a slightly higher cost. For example, if you are an online retailer, you might enter into an agreement with FedEx or UPS and offer express shipping service to your customers. This service will come at a slightly higher price, but it does not require any kind of drastic change on your company’s part.
Horizontal diversification
Horizontal diversification is when a company offers a customer a similar product at the moment a customer is purchasing something. An example would be offering a customer an ebook on pet care when they purchase an ebook on dogs. Another example is suggesting a customer purchase a camera case if they are buying a camera. Horizontal diversification is somewhat similar to related diversification in that it depends upon a company’s existing customer base. Internet mega-stores such as iTunes have brought horizontal diversification to the forefront as a relatively easy way to win more sales from customers. When you buy books on Amazon you will always be offered related books prior to check out.
Unrelated diversification
Unrelated diversification involves developing new products and services that do not build upon existing products or hold a direct relation to what your internet business already provides. Unrelated diversification offers you the chance to dilute the risk you take by spreading the risk across more than one niche market or industry. For example, if your website offers courses on how to buy real estate, you might want to offer courses on how to effectively let properties. When the real estate market is down, the rental market will be up. Diversification offers your internet business the chance to develop an idea without having to leave or divest entirely from its niche market.
Diversification does come at a cost. Costs not only include the development of a new product but also subsequent investments in research, marketing and even distribution. However, the potential rewards of diversification outweigh the risk. At the same time, diversification is a “safer bet” than continuing to focus on a market that might collapse during an economic downturn.
Alex Papa is an investor and internet entrepreneur with a large portfolio of diverse online and offline businesses.
Alex maintains
www.businessopportunitiesexpo.com, where he offers Norton coupon discount.
Alex,
This is a great explanation of the differences between the 3 types of diversification. The main goal of my business is to diversify.
Hi Matthew,
I am honoured to see you here. When I was writing this article I was thinking of some hugely successful online entrepreneurs who have earned massive incomes through product diversification. You were the first person in my mind – as an owner of a diversified business on a global scale. I had to learn the importance of diversification in the offline businesses and in the world of property investing. You used these principles directly in the online world, without prior exposure in the offline world, and that is really huge. Your online business continues to inspire all of us who know you, and we see you as a model of a world class internet entrepreneur.
I know very well that you are a big fan of “Horizontal” diversification in eCommerce with physical products that people need on a daily basis, such as food. Your internet business is a great example of diversifying to reduce risk and explore additional revenue streams. Your support of diversification as you express it in this comment is a reassurance for me to.
Hi Alex
This post is on topic for me at the moment. I have just managed to source the products I want to sell and do product reviews for. I am going to also suggest other products that will go with them such as books on the topic of the products I sell. This confirms I am on the right track as I seek to monetize my blog. Visiting blogs and reading posts that teach me how to be a more effective blogger and this article has done that. Thanks
Patricia Perth Australia
Patricia@lavenderuses recently posted..Lavender Recipes-Flower Power in the Kitchen
Hello Patricia, thank you for reading this post. I am very pleased to see that you benefited from it. As you say, you have just sourced a number of products you want to do reviews for and I take it you are planning to start promoting all of them at the same time.
I wouldn’t do that…
Though diversification is a safe bet in the long run, when you first start, it may be a better idea if you focus on 1-2 products. Once you build this up, and start making money from it, then you can invest some of your earnings on diversification. Here are two important reasons for this:
1. Diversification occurs additional costs. You may not want to load your new business with heavy startup costs. Prove your business concept with 1-2 products and then add more.
2. The costs of diversification (research, labour, tools, equipment, etc) are tax deductable. If you diversify from the moment you open your business, you are going to have to pay these costs out of your pocket. If you let your business make money first, then the costs of diversification are business expenses, and as such you get the tax man to pay a big part of them, in the form of tax deductions.
3. It is much easier and faster to do keyword SEO on one or two products at a time. SEO your site with backlinks for the first product, to the point that you rank at the top of Google for your keywords, and then start optimising your site for the next group of keywords related to another product. This approach is much faster.
Hope this helps. Please feel free to ask me if I can help you with anything else. Thank you
Thanks Alex
I have a techie (at last!) who will put up the shop front and I will just do product review maybe once a month on one product at a time. I have written and published posts on why to use organic lavender and lavender essential oil so thought I would start with reviewing the lavender essential oil first as I can add my own take on it too. The other products (affiliates to go with them) aren’t up on the site yet and I will take your suggestion for how to do that. Thanks for your offer of help. Will probably be asking you lots of questions lol
Patricia Perth Australia
Patricia@lavenderuses recently posted..Lavender Products- Why Choose Organic Lavender
Yes, feel free to ask me any questions Patricia when you are ready! There is a lot of support in this community as you will find people with different expertise and knowledge who can help. I’m learning a lot too!
This is why I love blogging. I learnt more during this engagement with Patricia (Hi Pat
) than I did in the post. Well OK i learnt more in the post – but it was applied with relevance here – Thanks Alex!!
Thanks Rick for having the wise Alex (with the awesome name I might add) here to post
Alex recently posted..Keyword Blog Update Forward thinking and Backward Linking
Good piece. People shouldn’t worry too much about spreading their services a bit. As well as improving diversity, it is also a part of expanding as well and as we all know, if you want to grow, there will always be some risk.
That is exactly right Paul. It is all about spreading risk and expanding services. During the economic recession of the last 2 years thousands of businesses started to diversify. However, those that were already diversifying had a head start.
Truly love this insightful post. As a blogger I believe related diversification is definitely the right route to follow. Getting related products that will appeal to your target audience is will perform better instead of promoting products that have nothing to do with what your blog topic is about.
Chadrack@Make Money Blog recently posted..Is Autoblogging Gradually Becoming The Next Phase of Making Money Blogging
Hi Chadrack, in internet marketing of digital products related diversification is more suitable. However, if you have a traditionally offline business where you are selling physical products or services, for example a real estate agency, then diversifying into unrelated services maybe a good option.
[...] Rick LaPoint@Internet Marketing´s last blog ..3 Ways to Effectively Diversify Your Internet Business within Your Niche Market [...]
Hi Alex,
Thank you for giving me clearer idea. As a business owner, prior reading your post, somehow I think to much and want to do that 3 diversifications the same time. It should be one step at a time. For my one month old online business (offline for several years), I should stick on related diversification first, right? It also can keep cost of the manpower down.
Thank you.
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Hi Rose, a step at a time seems to be the wiser option. Instead of addressing all 3 types of diversification at once, try one at a time, starting with “related” diversification. Once you develop this you can explore other types of diversification. Bear in mind that there are always costs related to diversifying so you may want to examine the potential return before your start spending money.