Diversification?

Chapter 11 delves into the economic benefits of diversification strategies.  Lululemon can be described as having a limited (or non-existent?) diversification.  Lulu’s website states “We make technical athletic apparel for yoga, running, dancing, and most other sweaty pursuits.”  Yes, the fabrics differ and the patterns can be slightly different.  But all in all.  Lulu running pants are quite similar to Lulu cycling pants.  The same demographic is targeted in each of the lines and the company’s reach can be somewhat limited.

But is this necessary a bad thing?  Nope!  As a substitute for diversification, “a firm may decide to simply grow and develop each of its business separately.  In this sense, a firm that successfully implements a cost leadership strategy or a product differentiation strategy in a single business can obtain the same cost or customer willingness-to-pay advantages it could have obtained by exploiting economies of scope but without developing cross-business relations” (Barney 325).

Essentially: Lulu is not Adidas.  It is not trying to serve a wide variety of markets.  Instead, it focuses on its niche.  Because of its excellence in this niche, Lulu can charge $118 for a pair of running pants.  And plenty of the narrow demographic will continue to purchase!