Irrigation: Two Strategies for Diversification – Horizontal vs Vertical

The last few years have impacted businesses in many ways. As business owners you have learned how to navigate challenging circumstances including: updated government regulations, recession fears, new communication methods with customers & employees, and obstacles in finding labor. Many of you have learned about the moves that are needed to help your business thrive—regardless of any adversity that may arise. It may come as a surprise to you that by showing real ingenuity and innovation you have figured out ways to thrive in the face of adversity by turning to diversification without even realizing it!

Diversification is a very common tool that keeps businesses healthy in the long term and can be used as both a proactive or reactive strategy. The most diversified companies in the world lead with the mindset of, “don’t put all your eggs in one basket.” So, is diversification right for your business? Learn more below as Bruce Routzahn, Central’s Director of Sales and Business Development, explains what you need to know about diversification along with two different strategies that can help you boost the health and growth of your business.

What do you need to know about diversification?

Diversification is often viewed as a safety net against downturns in a single industry or as a way to grow your business. Diversification can also build stability. The thought process is that if you concentrate too heavily on a single area, service offering or product selection, you risk volatility in revenue and resources as demand rises and falls. With diversification, your business can stretch across many areas or categories so that in the long term, you may have more predictability in revenue and overall demand.

The biggest reason to diversify is to avoid major repercussions when an industry or sector suffers a downturn. Some single-business or single-product organizations cannot survive a lengthy decline in their industry.

Another reason to diversify is that it can help you stay competitive in your local market. If a specific city or region is under-served in a certain category like landscape lighting, drainage, hardscaping, or mosquito/tick control, it may make sense for your company to expand into those areas to stay competitive against a competitor. On the other side, perhaps adding a service instead of a new product category can be beneficial.  You may want to just focus on promoting a system maintenance program or even consider adding an option for financing new system installs. These little things can help you stay competitive. The idea is if your company does not diversify and expand to fill the additional demand of products or services, then your competitors will do so.

There are two common types of diversification, vertical and horizontal. We will discuss what each one means and how they may benefit your business.

Vertical Diversification

As important and valuable as diversification is, it does have some drawbacks and risks. When you expand, you potentially lose focus on what your best products or offerings are. That is where vertical diversification can come into play.

Vertical diversification is the development of a depth of service offerings around your core competency and positioning. As an irrigation specialist, this can include things like:

  • Adding an upgrade and how-to options for WiFi controllers
  • Offering a monitoring/water management service
  • Focusing on the promotion of existing maintenance programs (spring turn on/winterization). For these programs, consider creating a regular schedule and communicate that schedule with your customers. This will help increase loyalty and may be a service that your competitors do not offer
  • Adding a financing option for new installs or bigger projects and system expansions
  • Offering educational classes on water conservation
  • Sharing recommendations for proper maintenance of existing irrigation systems
  • Offering end-of-year reporting on how much water a customer used/saved

Even adding something as simple as a “Welcome Walkthrough” where someone on your team takes the time to walk the property with the owner the day of install, thoroughly explaining the process one last time, setting expectations and answering any final questions. This maybe something you already do, and if it is, just promoting it may be something to consider. This can be considered diversification of a service and something that sets you apart from your competition.

Horizontal Diversification

With horizontal diversification, think of it as offering services or products across multiple categories. This type of diversification allows you to offer a breadth of services so you can be the expert in everything for everyone. At the very least, horizontal diversification allows you to expand into serving a new (and similar) customer base in your existing market, or a new market similar to your existing one.

Horizontal diversification is often used to promote growth in an existing business. Consider adding services like:

  • Design builds
  • Drainage
  • Outdoor lighting
  • Outdoor sound
  • Artificial Turf
  • Outdoor kitchens and fire pits
  • Hardscape Maintenance (sealer program)
  • Landscape maintenance
  • Mosquito/tick control

Adding these types of additional services opens up your business to a new base of customers. It also allows you to re-target your existing customers with the new services. With horizontal diversification, it is important not to diversify too much too fast, as this can carry risk. Remember, you want to make sure your core competency does not suffer when you expand into a new service offering. You also need to take the time to develop, promote, and grow that additional service so that over time it can become an additional core competency for your business.

As you can see, diversification can be developed in a few different ways. You can deepen your core competencies and add complementary services to amplify what you already do well, or you can expand into a variety of new categories/services in order to target new customers or new markets. It is most important that you examine your current business and determine what diversification strategy can be most effective, profitable, and sustainable for your business.

Finally, rely on Central to help! Whether it’s questions about business and marketing strategies, strategic purchasing, or business planning Central is the right partner for your business. We stay at the leading edge of the industry and we’re ready to help you grow!

About Bruce Routzahn

Bruce has nearly two decades in the Green Industry with a focus on Business Development, Sales Management, and Business Solutions. He holds a bachelor’s degree in business administration, and has worked on both the manufacturer (irrigation products) and distribution side with an emphasis in strategic planning and field sales management. Bruce is an excellent Central Turf and Irrigation Supply resource, available to answer any sales or business development questions you may have to help grow your business.