Diversification marketing vs. specialization: pros and cons for agencies

When you want to prime your agency for growth, there are two directions you can take your business strategy: You can offer a wider variety of services to reach new markets or you can hone in on what you do best to excel in your existing markets.

There’s no right or wrong answer. Both options—diversifying and specializing—can increase your customer base and profits. However, each strategy attracts different types of clients and can lead to different business outcomes. Learn the pros and cons of diversification marketing vs. specialization to choose the best path for your agency.

Diversification in marketing

Business diversification—a term coined by Igor Ansoff, the father of strategic management and inventor of the Ansoff Matrix—refers to the use of new products or services to attract new business.

Take Apple, for instance. Once a computer and laptop brand, Apple now offers a wide array of products, like smartphones, tablets, and AirPods, to name a few. The company used product diversification to its advantage to boost its market share across the tech industry—and it’s now the world’s leading tech company.

Your agency can do the same. For example, if your digital marketing agency focuses on search engine optimization (SEO), you can expand your services to include search engine advertising. Or if you own a video marketing agency, you can get more hands-on with marketing management by creating and scheduling social media posts for the videos you create.

Pros

When you choose diversification as your corporate strategy, your agency can reduce risk in dynamic markets and achieve a lot of growth in record speed.

Reduce risk

During an economic downturn, it pays to diversify. In the same way the Walt Disney Company used streaming to exceed expectations during the pandemic—when theme park, cruise line, and live show sales sank—an agency with diverse services will always have areas to fall back on. For instance, if demand for email marketing declines, you can quickly pivot and focus on other channels, like social media or website optimization.

Grow your client base faster

Diversification in marketing can open up a massive amount of opportunities to acquire new leads and clients. Rather than trying to squeeze out more business from your current market, you can reach new target audiences that are equal to the size of your existing ones.

This makes diversifying a great strategy for agencies that have already captured the majority of their markets. When your growth rate in one market declines, you can spur new, fast-paced growth in a new one.

Increase revenue

Service and product development can quickly boost your revenue, and not just because you’ll have far more potential customers. It also allows you to offer more value to your current clients—for instance, by launching marketing campaigns at a larger scale, across all major social media platforms. This can improve monthly spending and your client lifetime value, which is the amount you expect clients to spend throughout the time you work together.

Cons

Diversification marketing isn’t free of all risks. At the start, you may find your agency facing higher costs and even losses in market share.

Higher costs

When you offer more services, you’ll need more diverse skills and tools to get the job done. This means you’ll have to invest in new software. Plus, if your current staff lacks the required skills, you may need to hire new full-time marketing specialists or invest in online programs to train your team members. There will also be greater strain on your operations—especially if your agency is a small business—as project management and marketing tasks become more complex.

Losses in core services

Your core business offerings may take a hit when you diversify. By turning your attention to new markets, you may need to scale back on your biggest revenue drivers—and with no guarantee that your new services will succeed. Over time, this could turn you into a minor player in some areas of marketing, which you’ll need to make up for by selling more across the board.

Specialization in marketing: Pros and cons

Specialization occurs when an agency focuses on its current products or services, limiting what it does and who it serves. While this may seem counterintuitive to growth, focusing on one or a few core competencies can help your agency stand out to its current target clients and become a top provider of those services.

A few types of marketing specializations your agency could focus on might include content marketing, search engine marketing, and influencer marketing. Or you can focus on serving a few industries, like healthcare, information technology, or nonprofits. Here’s why you may or may not want to do so.

Pros

Honing in on a small number of specialties is an effective way to show you’re not just good at those areas—you excel in them. It can also improve your return on investment (ROI).

Strengthen brand recognition

Specialization in marketing sends the message that you’re the premier expert in your service areas. Since your agency won’t be spread thin, you and your team members can spend more time developing your working knowledge of core services and impress clients. This can lead to a huge boost in your reputation, turning your company into the go-to agency in your market for its specialties.

The specialization route can also simplify your agency marketing efforts. You can be clear and consistent about what you do in every campaign—for instance, by running with the tagline “product marketing for healthcare brands.” As a result, your agency can become more memorable and closely cater to and attract its ideal clients.

Boost productivity

While having a diverse set of services can bog down your team, keeping your focus on a few areas can help you stay efficient and boost your ROI. Your team members won’t have to extend themselves to a wide range of marketing channels or shift between apps. This makes it easier for marketing professionals to streamline their workflow with automation tools and templates. The result is more output with fewer costs.

Increase market penetration

Specialization can help your company dominate a market. If you believe there’s still plenty of untapped potential in the areas you already excel in, your agency can benefit from this strategy. For instance, if your biggest money maker is your brand management package for information systems providers, but few other agencies are working with telecommunications brands, catering to those businesses can be a profitable opportunity.

Cons

On the downside, specializing can limit your overall growth and increase risk during economic downturns.

Limited growth opportunities

With specialization always comes the risk of over-specialization. While your agency can grow quickly in its current market for a period, there may come a time when you max out opportunities or your potential growth slows down. The risk becomes especially high if consumer demand changes and your target industries shrink.

Dependence on core services

During an economic downturn, specializing can be a huge risk. Tourism, for instance, took a huge hit during the pandemic—and any agencies that exclusively worked with brands in that sector were poorly positioned to grow.

Refine your current business strategy

The specialization and diversification of marketing services can help your agency achieve success in the long run but each contributes to different goals. If you want to increase the long-term stability of your business and achieve quick growth, diversification can be a great option. However, specialization can help you develop a stronger reputation for expertise and boost your agency’s efficiency.

Still unsure which strategy is the best match? Learn how to do market research to get the data you need to make the best choice for your agency and begin your strategic planning.
 

FAQs

What is an example of diversification in marketing?

A good example of diversification in the marketing world would be if a graphic design agency began selling social media marketing services on top of their current offerings. Or, if the design agency mainly offered marketing services for graduate programs in the past, it could expand its services to appeal to colleges that want to promote their bachelor’s degree programs.

Is diversification a marketing strategy?

Diversification is considered a business growth strategy rather than a marketing strategy. However, it can still help you attract new customers and give you a competitive advantage.

What are the four methods of diversification?

Four types of diversification are horizontal, vertical, concentric, and conglomerate. Horizontal diversification occurs when you offer new products or services, while vertical diversification cuts costs by expanding your role in your production process—for instance, if you create and manage your own video editing software.

Under the horizontal umbrella, concentric diversification is all about creating new offerings that are similar to your existing products and services, while conglomerate diversification allows you to enter brand-new industries or markets.

What is the diversification strategy?

A diversification strategy is a plan that businesses create to expand their existing product line or services in order to enter new markets and grow.