Diversification is a corporate strategy that refers to a company venturing into an industry, market or service provision that is different from its core function. In logistics, this can be taken to mean a firm is an “omnivore” working on several aspects of supply chain management at once. Niche market targeting, however, could be said to be the exact opposite. Companies here hone in on one logistics function and specialize in that and only that e.g. firms exclusively dealing with exports, or working only in the logistics of dairy products.
Niche logistics have the key advantage of simplifying the Marketing efforts undertaken by a given company. This is because promotional messages can be dedicated to a specific group that comprises the intended target audience, narrowed down from the general population by demographics that define the customers of the niche supply chain management firm. A company specializing in transport of medical equipment can focus their message to the medical community specifically, lowering their costs as compared to a general logistics company canvassing a larger audience on the off chance that some of them may need their services.
Depending on the niche in question, there are also likely to be fewer competitors in operation. While this means that competition between the few firms will likely be more intense than general competition, it also makes it easy for companies to differentiate themselves and their services, as they do not have to “shout” to be heard above very many brand messages.
Likewise, by focusing on a specific aspect of logistics, companies can gain mastery of every aspect involved, perfecting current strategies and staying on top of new developments in that particular area. This means they will be better positioned to supply the service to customers in need than their diversified counterparts as they will become experts in the field. This in turn makes it easier to build a solid reputation as the best at the chosen niche, generating the best possible publicity for the firm in question. Through market recognition as among the top firms in providing a service, it is easy to position the company as being synonymous with the industry, much the way the average Kenyan will use the brand name “Vaseline” when referring to petroleum jelly in general.
One of the key advantages for diversified companies is the potential for growth. Growth in this case is defined by increase in employees, orders or units handled, equipment or facilities needed and so forth. By expanding the number of logistics services offered, companies will be forced to expand on systems that support this as well, e.g. a firm that exclusively offered freighting can expand to include warehousing solutions, necessitating acquisition of a storage building.
This also applies in terms of market share: companies that grow their offerings in the logistics industry are also likely to see an expansion of their customer base, as they utilize the additional services on the menu of a given supply chain management firm. Thus, they take up more and more of the client pool for the logistics industry, cementing their hold on the market share by monopolizing a large percentage of available consumers.
By far the most comforting advantage of diversified supply chain management service provision is reduction of risk. Having interests in different aspects of logistics guarantees that should one venture fail to generate expected revenue, the business will still be able to proceed using profits from other categories of logistics services. Essentially, the firm is cushioned from sudden failures in any one of its ventures because, excuse the cliché, it has not placed all its eggs in one basket.
Diversification and niche provision of supply chain management services both have their strong selling points to any potential investor in the industry. We can’t help but wonder; if someone seeking to break into the logistics scene in Kenya asked for your advice, which would you recommend? Choose wisely.