For companies, they all want to have bigger market share and earn more profit. So they will find many ways to penetration into the market like diversification. Diversification strategies are used to expand firms’ operations by adding markets, products, services, or stages of production to the existing business. The purpose of diversification is to allow the company to enter lines of business that are different from current operations. There are basically two broad forms of diversification as related diversification and unrelated diversification.
Starbucks is the largest coffeehouse company in the world; they not only sell coffee and coffee beans also sell other drinks, salads, sandwiches and snacks. Besides they bought the Hear Music Company and develop other business except coffee. Related diversification, occurs when a company develops beyond its present product and market whilst remaining in the same area. For example, Starbucks Corporation buys roasts whole bean coffees and sells them along with rich, specialty coffees, pastries and confections, and coffee-related accessories and equipment through company-operated retail stores.
It also sells premium coffee beans through other channels of distribution, including coffee distributors, hotels, retailers, warehouse clubs, and restaurants; which are collectively called Specialty Operations. Starbucks offer their coffee cup in their retail shops as well. Unrelated diversification is a corporate-level strategy based on a multibusiness model whose goal is to increase profitability through the use of general organization competencies to increase the performance of all the company’s business units.
Companies pursuing a strategy of unrelated diversification have no intention of transferring or leveraging competencies between business units or sharing resources. For example, Hear Music is the brand name of Starbucks’ retail music concept. Starbucks bought it in 1999. in 2002, they produced a starbucks opera album and in 2006, the company created starbucks entertainment, one of the producers of the 2006 firl Akeelah and the Bee. Retail stores heavily advertised the film before its release and sold the DVD.
Starbucks also partnership with Apple to collaborate on selling music as part of ‘coffeehouse experience’. Customers would be able to browse the iTunes Store at starbucks via Wi-Fi in the US, targeted at iPhone, iPod touch and MacBook users. Firms may choose to diversify because diversification may benefit the firm’s owners by increasing the efficiency the firm. There are few efficiency-based reasons for diversification. With diversification, firms can easy to have more customers and more market shares.
For example, starbucks use the best coffee beans to make coffee and produce the perfect cup of coffee so they can started in 1973 and keeps going today. Until starbucks provide us not just a single cup of coffee they have bottled drinks, brewed coffee, chocolate beverages, espresso beverages, frappuccino blended beverages, kids’ drinks and other kinds of drinks. With these different products so starbucks can successful so many years, in different countries and have different position customers. Besides drinks, starbucks also service like breakfast, sandwich, salad and other snacks.
It changes the coffee give us the impress just make us wake up, it already become one kind of people’s life style. Firms Diversify also can get the economies of scale and scope. Starbucks’ packaged coffee and tea business is growing. The company sells Starbucks-branded coffees and teas through arrangements with grocery stores as well as retailers such as Costco and Wal-Mart. As consumer spending picks-up with an improving economic environment, we expect further growth in Starbucks’ packaged coffee and tea revenues.
The company’s retail sales mix was roughly 61 percent coffee beverages, 15 percent whole-bean coffees, 16 percent food items, and 8 percent coffee-related products and equipment. The product mix in each store varied, depending on the size and location of each outlet. Larger stores carried a greater variety of whole coffee beans, gourmet food items, teas, coffee mugs, coffee grinders, coffee-making equipment, filters, storage containers, and other accessories.
Smaller stores and kiosks typically sold a full line of coffee beverages, a limited selection of whole-bean coffees, and a few hardware items. Starbucks use their coffee beans not only to make coffee, they also diversify to use coffee beans to make other products and Starbucks can use the same raw material to produce different products to get more revenue. In china, when mooncake festival, Starbucks also offer their own moon cakes. This can attract new customers to try their products. Diversifying shareholders’ portfolios and reduce the risk
Shareholders invest in a diversified portfolio can reduce the chance of incurring a large loss due to the failure of a single firm. A broadly diversified firm may receive only a small percentage of its revenues from any one line of business. Hence, a share holder seeking to avoid large swings in value can invest in the diversified firm and thus be shielded from risk. For example, Starbucks had the saturation of the U. S. coffee market, and the decreasing of their gross profit margin, Starbucks has started to move from having a concentrated business strategy to a diversification strategy.
Starbucks has realized that once a market matures that it is too risky to be concentrated, and that they should keep diversifying their business product lines in an effort to stay profitable, and competitive. They should diversify into products such as candy, bagels, and other food related products. And they also diversify into clothes, music, film, transport and other unrelated products to increase their portfolios. Diversification also can increase the firm’s market power. Firms can diversify its vertical chain also means other firms are difficult to entry into this market and compete with them.
For example, Starbucks not only sale coffee, customers also can buy the special coffee beans, coffee machinery and any things related to their coffee. So when customers want to buy anything about coffee, they will think of Starbucks first. This is very hard to other coffee shops and the new firms are very hard to have this ability to compete with Starbucks. Advantages Control of inputs, leading to continuity and improved quality. For instance 1984 and 1985 NewsCorp acquired Twentieth Century Fox and six television stations of the Metromedia Broadcasting Group in the US.
These acquisition provided the company with a wider platform for consolidation of its related activities through access to studios for making films and television Programmes. Control markets by guaranteeing sales and distribution. This can arise through a combination of linkages in the value chain. For example where production and distribution channels are combined, or where a company uses its well-established brand names or corporate identity to gain benefits in new markets Take advantage of existing expertise, knowledge and resources in the company when expanding into new activities.
This may result in transfer of skills, such as research and development knowledge and sharing of resources. Provide better risk control through no longer being reliant on a single market. Provide movement away from declining activities. Spread risk by avoiding having all eggs in one basket Disadvantages may result in slowing growth in its core business. Starbucks introduced many new products to broaden its appeal. These new products undercut the integrity of the Starbucks brand for coffee purists.
They also challenged the baristas who had to wrestle with an ever-more-complicated menu of drinks. With over half of customers customizing their drinks, baristas hired for their social skills and passion for coffee, no longer had time to dialogue with customers. The brand experience declined as waiting times increased. Moreover, the price premium for a Starbucks coffee seemed less justifiable for grab and go customers as McDonald’s and Dunkin Donuts improved their coffee offerings at much lower prices.
2. Adding bureaucratic complexity. In addition to direct financial costs, there may additional bureaucratic complexities necessitated by the need to coordinate and control core activities with additional activities. ? Losses may be incurred during market consolidation process resulting in some business units being subsidized by other profit making units. This was experienced by NewsCorp the performance of Sky Television resulted financial losses of nearly ?10 million per month were incurred despite all the stringent cost reduction measures being put in place in line with the overall strategic vision of NewsCorp.
Diversification through acquisition across national boundaries may result in the organisation having to deal with varying intricacies of the political and legal requirements of the different countries in which the organisation has controlling interests. For example Rupert Murdock was not allowed as a non US citizen to have more than 25 % of any company with a broadcasting licence. As s result he was compelled to become a US citizen in 1985. Diversification through acquisition May result in failure where there is a mismatch between core competencies or experiences of the acquirer and acquired businesses.
