Diversification is key for business growth, even if you are a small business.
Gone is the myth that you have to sell a product within a single business model. Maybe at the beginning is okay. However, sooner than later, you have to diversify, if you want to grow your business.
We live in a globalized world, where the success of growth is given by the diversification of business models. We are heading to (or are already) in the era of multi-brand and multi-product.
So today we are going to share with you the Lego’s case.
How is it that the toy maker Lego continues to grow, despite rising production costs and outperforming rivals?
One word: Diversification.
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Business Model Diversification Strategy
It is not enough to deliver an exceptional product or service.
Companies must also find new opportunities in the way they create and deliver value, creating a portfolio of business models that can foster and sustain growth.
Diversification refers to the process of expanding a company’s products, services, or markets in order to reduce risk and increase revenue opportunities.
By diversifying, a company can reduce its reliance on any one product or market, which can help protect it against fluctuations in the economy or changes in consumer demand. It can also help a company tap into new revenue streams and gain a competitive advantage over rivals.
However, it is important to note that diversification may not always lead to growth. It requires careful planning and execution, and there are risks involved in expanding into new markets or products. A company must also ensure that it has the necessary resources and expertise to successfully enter new markets or launch new products.
Fundamentally, the diversification strategy can help increase sales, but also:
1.To achieve higher profitability
2. To mitigate risks in the event of an industry downturn.
3. To enable greater variety and choice of products and services, providing a tremendous boost to the company’s brand image and profitability.
4. To defend itself. By diversifying products or services, a company can protect itself from competing companies.
The Lego’s Case
LEGO Group is known for using diversification as a key marketing strategy. LEGO’s product line spans across multiple categories, including classic brick sets, licensed products, robotics, video games, and theme parks.
To go deeper, we can list 3 ways in which Lego keeps building its empire:
1. Be where your customer is.
When our clients ask us what social media platform is right for their businesses, we always reply: Be where your customer is.
And that’s why Lego has been creating new factories in Vietnam, and is planning to open a carbon-neutral factory in Richmond to deliver US demands.
Even if the toy maker has had to shut down 81 stores in Russia, due to the Russian war in Ukraine, Lego Chief Executive Niels Christiansen tells Reuters that it plans to open another 145 stores this year, mostly in China.
Market penetration has been key for its growth.
2. Develop digital products.
We can reach new markets by developing new products. In this case, digital products.
According to The Wall Street Journal, Lego has invested in $1 billion in the video games’ developer.
Christiansen explains that last year, Lego set itself the goal of attracting more children to the brand. To reach that goal, the company delivered The Skywalker Saga video game and the Lego Builder app.
3. Product diversification
The toy maker company seized the opportunity to offer new products to a new target.
In an interview for CNBC, Chief Executive Niels Christiansen explained the experienced growth of the company, “It’s not price increases driving it, if anything it’s people buying some of the bigger and more complicated sets. It’s a combination of volume and value.”
So another key point of its growth is to deliver different products for a wide range of consumers spanning all ages and interests.
Overall, LEGO’s use of diversification as a marketing strategy has been successful in driving growth and increasing brand recognition.