If you’re interested in expanding your product lines or launching new products, here’s what you need to know about the benefits of diversification and its challenges.
Is Portfolio Diversification The Right Move For Your Business?
If you’re considering expanding your beverage offerings and products, you should take a number of factors into account.
Are you looking for additional revenue streams to grow your bottom line? Expanding your SKUs and putting forward new products or bringing back limited edition ones could help your brand weather the storm, as experts predict that 2023 will see a global recession that can impact your beverage business. You can’t know where you’ll need to cut spending, so diversifying your portfolio gives you a cushion to continue with products that are resonating with your customers and drop those that aren’t.
When it comes to the benefits of diversification, providing consumers with access to a variety of products is key. In a market landscape where product offerings shrink due to economic pressures, diversification can help your brand stand out from the competition.
Download The 5 Beverage Trends Defining 2023
What Are The Different Types Of Portfolio Diversification?
There are several kinds of portfolio diversification you can leverage to help boost your business’ revenue and strengthen your brand recognition.
Concentric
Concentric diversification means that you introduce products that are similar to your current offerings, such as new flavors for beverages that your consumers already know and love. This style of diversification is great because it allows you to make the most out of product lines that have a history of success for your brand.
Horizontal
This kind of diversification sees you roll out new product lines and offerings that are unrelated to your current products, but still adjacent to them. Think of a company known for a dairy beverage debuting a coffee beverage, or a lemonade brand launching a new carbonated drink.
Conglomerate
Conglomerate diversification is the term used to describe when brands branch out into new products that are totally unrelated to their current offerings. If RC Cola pivoted to selling footwear, this would be an example of conglomerate diversification!
For the purposes of this blog, we’ll be focusing on concentric diversification.
The Benefits Of Diversification For Your Beverage Business
If you’re searching for a way to branch out and introduce new product lines that can expand your portfolio, but want to do so in a way that minimizes risk, diversification can be an extremely helpful tool during the process.
Diversification can help brands “better understand the adjacent and competing categories to their core sectors, and to use small-scale investments to learn more about these adjacent products,” says Emily Neill, COO Research at beverage market analysis firm IWSR. “There’s also an element of experimentation and innovation at play.”
A diversified portfolio can mean both increased profitability for the new products you roll out, along with higher sales for existing products that come from the excitement and buzz created when you launch a new product.
Diversification also provides crucial risk mitigation. If there’s an industry downturn or shifting consumer preferences away from a particular product, diversification means that all of your eggs aren’t in one basket - you’ll have additional offerings that can help your company get through tough times.
More variety allows for more market penetration. Expanding your product lines means more opportunities to connect with both your existing consumers and new audiences. Another strong benefit of diversification is that it paves the way for you to get to a particular market first, giving you a critical competitive edge over other companies.
What Are The Risks Of Portfolio Diversification?
While the benefits of diversification are clear, there are also some challenges associated with the move. Unknown markets can be risky, whether you’re dealing with a new product line or reaching out to a previously untapped audience. You should carefully weigh the benefits versus the risk involved, and do extensive research to gauge whether this is the ideal time for your brand to roll out something new.
As part of your decision-making processes, there are 3 standard risk tests you can use to determine if portfolio diversification is the right step for your beverage business:
Attractiveness Test
Even if a new product might seem appealing in the boardroom or the factory floor, that doesn’t guarantee it will be appealing to customers. You need to be sure that your new offering is attractive in the sense that it will likely financially benefit your business.
Cost-Of-Entry Test
This means doing your due diligence and figuring out what the cost-of-entry is for your brand to introduce a new product - if it involves you spending a lot of money or going through logistical inconveniences such as changing your manufacturing, packaging, and branding processes, it might not be worth it for you.
Better-Off Test
It’s important that in the excitement of a potential new product launch, you don’t lose sight of your ultimate goal: boosting revenue. If your new offering won’t give your brand a competitive edge or increase your bottom line, it’s not a good investment of your time and resources.
Download The Top Flavor Beverage Trends For 2022
How RC Cola Can Help
RC Cola has decades of experience in portfolio diversification, having launched and marketed multiple new products since our founding in 1905. As the first soft drink company to offer diet soda, which we debuted in 1958, we deeply understand the power of introducing new products to the market. More recently, we’ve rolled out RC Q, a fruit-flavored line, and better-for-you RC Cola Neo, which has 50% less calories than our traditional offerings.
We can help guide you through the process of diversifying your beverage portfolio, expanding your products, and launching your new beverage. Contact us today to learn more about how we can help you plan your strategy for portfolio diversification to strengthen your beverage brand.
