Diversification is a concept most commonly associated with investing, where the variety of one’s holdings acts as a hedge against volatility.
As the thinking goes, diversifying your investments yields better long-term returns while weathering specific changes within asset classes, industries and geographical markets.
But these mechanisms and concepts aren’t just pertinent to investors. Volatility, long-term viability, risk and change: these are also concerns held by business owners, who are invested in the longevity and profitability of their organization. That’s where we get business diversification.
Business diversification – or market diversification – can be a major boon for a company. Or it can be a regrettable misstep. This article discusses what diversification means to a company and why adding “auxiliary services” remains a shrewd way to diversify.
Per the government Trade Commissioner Service, “Diversification is a risk-reduction strategy that involves adding product, services, location, customers and markets to your business’s portfolio.”
If that sounds an awful lot like investment diversification, that’s because it is. Whereas in investment, volatility comes in the form of unpredictable markets, volatility for a business comes in the form of unpredictable consumers.
Consumer expectations can change. Consumer desires can change. New competitors can wheel away consumers with different branding or service offerings. New demographics entering a market can upset the gains your company has made. Or circumstances well beyond your control (like a global pandemic) can force changes to consumerism on a grand scale. Diversifying your business helps you weather these unpredictable changes.
Diversifying with auxiliary services is a diversification strategy that involves adding product and/or service extensions to your core offering. It’s one of the most common ways to diversify – and one of the smartest.
As an example, take Nobul, a real estate digital marketplace. The company is well-known (and well-liked) by consumers as a kind of “matchmaking service” for homebuyers and sellers looking for real estate agents.
The company’s CEO and founder, Regan McGee, recently announced to Medium that his company is adding auxiliary services like insurance and mortgage services to their platform, with the goal being to build “the world’s first end-to-end technology platform for real estate transactions.”
Let’s recap why this was a good decision. Diversifying with auxiliary services, as Nobul has, enables your company to:
Add value for existing customers, which promotes loyalty and retention
Attract new customers to your core service
Create an end-to-end experience that doesn’t require the consumer to go elsewhere for adjacent services
Anticipate new customer expectations and priorities
Respond to new market circumstances, like demographic shifts or an increasing preference for tech-enabled solutions.
As mentioned above, these benefits don't just make your business more viable in the long term; they also help you weather changes in consumer patterns and behaviour.
Auxiliary services aren’t the only way for a company to diversify (brand extensions and geographical expansion into foreign markets remain popular as well). But it is one of the smartest. If you are an owner looking to future-proof your business and attract new consumers, consider brainstorming auxiliary services your company can add.