If somebody was to ask what industry Virgin operates in primarily, the first thought that comes to mind would inevitably vary between each of us. This is due to the Virgin Group partaking in what’s known as ‘unrelated diversification’ – the fifth strategy in Ansoff’s Matrix. Unrelated diversification involves entering an entirely new industry that lacks any important similarities with the firm’s existing industry or industries, and is often accomplished through a merger or acquisition.
In the case of Virgin, unrelated diversification has certainly been a successful strategy in terms of maximizing profitability. Looking back to 1970s and the start of its operations as a record mail order company and record store soon after, given the rapidly changing nature of the music industry since, it is possible that the company would no longer exist if it hadn’t innovated in this way. With a total of 35 subsidiary companies within the Virgin Group globally, within the UK today’s breadwinners look very different to the 1970s, helping the Virgin Group to a total revenue of £15 billion in 2012:
The key to successful unrelated diversification is identifying an industry with strong profit potential, where the firm has internal competences that help to gain a competitive advantage. Virgin Atlantic’s market entry in the 1980s in a good example of this at a time when great customer service was a rare quality in the airline industry, which was instead plagued by cancelled flights, delays and lost baggage. Virgin’s internal competence of providing an excellent customer experience throughout its existing family of companies offered an advantage that would be hard for competitor airlines to replicate – and therefore potential to charge a price premium.
However, the ‘unrelated diversification’ strategy is far from full proof and there are numerous examples in which it has failed for Virgin. Perhaps the most high profile case is the short rise and rapid fall of Virgin Cola in the mid-1990s – following an ambitious, yet unsuccessful plan to compete with Coca-Cola and Pepsi. Despite the ever-growing fizzy-drinks market, conditions were not conducive to Virgin’s entry due to the existing players’ ability to block access to widespread distribution and a backlash in advertising spend – which ultimately limited Virgin Cola to just a 3% market share on its home UK turf before exiting.
If somebody was to ask what industry Virgin operates in primarily, the first thought that comes to mind would inevitably vary between each of us. This is due to the Virgin Group partaking in what’s known as ‘unrelated diversification’ – the fifth strategy in Ansoff’s Matrix. Unrelated diversification involves entering an entirely new industry that lacks any important similarities with the firm’s existing industry or industries, and is often accomplished through a merger or acquisition.In the case of Virgin, unrelated diversification has certainly been a successful strategy in terms of maximizing profitability. Looking back to 1970s and the start of its operations as a record mail order company and record store soon after, given the rapidly changing nature of the music industry since, it is possible that the company would no longer exist if it hadn’t innovated in this way. With a total of 35 subsidiary companies within the Virgin Group globally, within the UK today’s breadwinners look very different to the 1970s, helping the Virgin Group to a total revenue of £15 billion in 2012:The key to successful unrelated diversification is identifying an industry with strong profit potential, where the firm has internal competences that help to gain a competitive advantage. Virgin Atlantic’s market entry in the 1980s in a good example of this at a time when great customer service was a rare quality in the airline industry, which was instead plagued by cancelled flights, delays and lost baggage. Virgin’s internal competence of providing an excellent customer experience throughout its existing family of companies offered an advantage that would be hard for competitor airlines to replicate – and therefore potential to charge a price premium.However, the ‘unrelated diversification’ strategy is far from full proof and there are numerous examples in which it has failed for Virgin. Perhaps the most high profile case is the short rise and rapid fall of Virgin Cola in the mid-1990s – following an ambitious, yet unsuccessful plan to compete with Coca-Cola and Pepsi. Despite the ever-growing fizzy-drinks market, conditions were not conducive to Virgin’s entry due to the existing players’ ability to block access to widespread distribution and a backlash in advertising spend – which ultimately limited Virgin Cola to just a 3% market share on its home UK turf before exiting.
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