Boosting your business through diversification

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By Angelica Lovell, Associate, Stevens & Bolton LLP

Customers’ preferences in how, what and where they purchase goods and services have changed dramatically in recent years and their habits look set to continue to shift. Even multinational businesses like Ikea and Tesco are having trouble catching up and are shaking up their business models by introducing new store formats. But is diversification just for the big names or can SMEs benefit too?

Whilst having only one core business offering can promote a strong brand it also carries a lot of risk, particularly for small and medium sized businesses looking to attract and maintain customer loyalty, and could cause trouble if that offering goes out of fashion. Customers of all types increasingly live online, from buying online to having their preferences and brand awareness shaped online. When people do go to physical stores, it is more likely to be in urban areas with a preference for smaller shops-. Individuals are spending more on experiences and less on ‘stuff’. Good for restaurants, theatres and cinemas but bad for manufacturers and retailers. 

Diversification takes many forms, the most obvious being the sale of goods through new channels and the introduction of new product ranges. However, there are also more subtle ways of adjusting your way of operating which do not need to cost a fortune. Retailers would do worse than to introduce an experiential element to their offering. Putting on pop-up shops with time-limited products, having cafes in stores and hosting events at stores out-of-hours are all viable options. 

Agility  

The good news for SMEs is that their size offers a significant advantage in that they are lean and so often better placed than large organisations to make timely changes to how they operate. Multinationals are likely to struggle in implementing changes to their businesses models due to internal governance procedures, entrenched customer ideas about them and unwieldy supply chains.

Flexibility is key, not only internally but in dealings with the supply chain. If a new location or type of product or service is to be trialled, both supply and occupancy agreements need to be carefully checked to ensure that the SME is not restricted or tied into an unfavourable arrangement. At the same time, if the new initiative takes off, the SME will want to ensure that it has contracts in place to support this, provide longevity and (if the offering is unique) that exclusivity has been secured. Making sure that contractual liability is suitability limited and there are adequate rights of recourse against suppliers should be a focus, especially where an SME is entering a new area that is outside its comfort-zone.

Technology

Some SMEs still do not have their own website or have websites with limited capability. Whilst there may be a reluctance to invest in improving an online presence, this can alienate or eliminate a large swathe of potential customers and future rewards. When reviewing website development contracts special attention should be paid to intellectual property rights (particularly if an innovative App is being commissioned or other experiential element such as a 3D online experience) to ensure that the SME owns key rights and that liability to third parties for website content or intellectual property infringement is minimised.

Advertising does not have to be just done through traditional routes. Even using Facebook is becoming outdated with millennials moving away to other forms of social media. Where millennials go, it may only be a matter of time before others follow! Finding blogs or vlogs that cater to your target audience and having them feature your products or services can be an excellent way to get your brand out to new customers. However, be careful that any advertising is clearly identifiable so people are not misled.

Whatever method of diversification you choose, think about what the driver is, whether the measure addresses the relevant challenges and how you can protect your business whilst putting it in place.