To be relevant and successful, businesses must keep a close eye on current market trends and product success. When businesses see an opportunity to diversify their product lines for greater marketability, they frequently embark on a process known as product diversification.
Product diversification can help organizations grow their brand’s presence by expanding a product’s present market.
In this article, we define product diversification, discuss why organizations might use it, the benefits and stages of doing so, and present practical examples of how products can be diversified.
What does it mean to diversify products?
Product diversification is a strategy used by businesses to broaden the scope of a product’s target market. This new component to an existing product line, such as new technology, more sibling items, or expanding existing product availability to reach new customers, is often what product diversification comprises.
While product diversification is typically used as a technique to boost a product line’s overall salability and profitability, it can also be used to solve a range of issues, such as:
- New scientific or technology development: If recent advancements in science or technology render a firm’s product outmoded or old, the company may decide to diversify its product offerings. Companies can change existing items using new technology and scientific breakthroughs to assist them through this process.
- Overspecialization is avoided: Companies sometimes introduce and develop new goods to avoid overspecialization in a specific market. Diversification can help a corporation expand its customer base and revenue sources in such times.
- Research and development discoveries: When organisations invest in R&D, they frequently uncover the potential to produce and sell new goods that are connected to their current market. Companies may diversify their products as a result of seeing this possibility for growth.
- Companies that sell items to niche markets frequently aim to expand their existing product ranges in order to attract new customers or retain existing ones. Companies can broaden their markets by diversifying their products to appeal to a wider range of demographics.
- Changes in society can have an impact on consumer behaviour and demand. For example, as society has become more concerned about environmental sustainability, new markets for “green” products made using environmentally friendly procedures have formed. As a result, corporations may utilise product variety as a tactic to react to changes in consumer behaviour.
Benefits of product diversification
There are several benefits to product diversification. Companies may employ product diversification for several reasons, from avoiding profit loss to the anticipation of a societal shift.
Therefore, the strategy offers a variety of advantages depending on a company’s specific situation. Here are a few benefits companies can enjoy from diversifying their products:
- Product diversification can reduce a company’s financial risk in the event of an industry slump. Companies can increase the scope of what their products do when they successfully grow the market for a product line. This can assist mitigate any negative effects that industry-related difficulties may have.
- Product variety can aid in the development of strong brands with high exposure. Brands that provide more diversity and options within their products or services are more likely to be recognised and remembered by consumers. For businesses looking to boost profitability and build brand loyalty, this can be a huge help.
- Protection and consistency: Product variety is frequently used as a defensive strategy to keep competitors from encroaching on a brand’s market share. Companies can widen their stable hold on a market and acquire additional protection against such competition-related issues by increasing the range and options of a given brand.
- Resourcefulness: If companies find relative accomplishment and profitability with their original products, they can use product diversification as a method to maximize their resources and continue to achieve success in the same capacity.
Stages of product diversification
There are a variety of stages within the product diversification process. Company executives may choose to engage in product diversification up to any stage deemed appropriate to address the company’s particular needs. Here are a few of the stages of product diversification explained:
1. Repackaging products
Companies might repackage their items to broaden their offerings. The way products are displayed on the shelf can have a considerable impact on their marketability to different groups or demographics of customers.
This is especially true for versatile products that are only promoted for a single purpose or to a single sort of person. Companies can theoretically broaden the market for a product line by changing how it is promoted.
2. Renaming products
Companies rebrand things to make them more marketable on a global scale. Renaming products, like repackaging, might help attract new buyers who speak various languages or are used to different types of product promotion.
The varied products are usually identical to the original products but sold under a different name in such circumstances. Companies might try to sell their products more efficiently in different geographic areas by rebranding them and aligning their marketing strategies with local cultural norms.
3. Resizing products
Diversifying items by resizing them is a typical practice. Some businesses sell products in standard sizes or quantities, but they may alter their sizes to appeal to a wider range of customers.
For example, if a corporation typically sells huge amounts of its products to wholesale merchants, it may start selling lower quantities to appeal to a smaller retail market.
On the other hand, companies may expand the size of their products in order to advertise them to value buyers who want to save money by buying in bulk.
4. Repricing products
Companies sometimes vary their products by altering prices or repositioning them for different sales channels. Repricing a product at a reduced cost is a rare product diversification approach, whereas raising a product’s price is more common.
For example, if a corporation wants to sell its product at a higher price, it may produce a nearly similar version targeted at higher-end shops. These products may have minor changes to the materials used in their creation or the way the corporation styles them in marketing campaigns.
5. Brand extension
Companies can add higher or lower-end options to their product line to broaden their existing brand of items. Companies that make high-priced or luxury goods, such as vehicles, laptops, jewelry, smartphones, and other items, frequently employ brand growth as a strategy.
These products may meet the needs of a diverse economic demographic of customers. Consumers who may not be able to justify expensive, top-of-the-line purchases but are interested in purchasing similar things that are aligned with the brand’s quality and notoriety might benefit from brand expansion.
6. Product extension
The process of product extension can be used to diversify products. Companies expand their product lines by offering multiple variations of the same item, such as alternative styles or colors. Companies may also choose to sell different versions of the same product with different upgrades.
This method may be useful in attracting customers who are interested in acquiring products but have specific aesthetic preferences or sophisticated features.
Examples of product diversification
Various methods of product diversification may be used strategically within a multitude of industries. Here are a few tangible examples of how companies might diversify their products to help you apply the concept to real-world situations:
Broadening the definition of health products
A successful healthcare brand begins by selling over-the-counter medical goods. They decided to increase the meaning of health products by releasing items that expand their brand and broaden the consumer definition.
They seek to develop additional product lines in the areas of vitamins, supplements, first aid, skincare, dental health, vision care, women’s health, infant care, hair care, and nutrition to increase their brand’s visibility and capabilities.
Consumers may learn to perceive the firm as a trustworthy wellness brand when the company expands its scope by selling additional related products.
Committing to environmental sustainability
A car firm has made a name for itself in the industry by producing dependable, high-quality vehicles. However, as consumers have become more environmentally sensitive, the company’s earnings have declined significantly in recent years.
While the corporation continues to manufacture traditional automobiles and trucks, the automotive industry has turned its focus to hybrid vehicles that emit fewer greenhouse gases.
As a result, the automotive firm can broaden its product line by including hybrid and electric vehicle alternatives. When given these options, they may choose to raise the price of their cars, as buyers are more likely to pay more for environmentally friendly items.
After confirming the societal consensus, the corporation may enjoy a large return of earnings due to its already-established reputation.
Understanding the market for organic products
A beauty brand has found relative success in offering a limited line of dependable products. As consumers have become more interested in buying organic beauty products that are manufactured with natural ingredients, the brand may choose to shift its approach.
The brand can diversify its product line by offering new organic products in addition to repackaging its classic products that consumers have come to know and trust. This can help the well-recognized brand maintain relevance, expand its potential for profitability and appeal to new health-conscious consumer markets.
Building experiences into a brand
A book series has experienced substantial success in the years since its first release, and the resulting brand has already expanded to sell four sequels to the original book. In order to diversify their products, the brand can choose to expand the products they offer by building in services, such as additional consumer experiences.
They can choose to release movies based on the books to further establish the brand both commercially and culturally. In addition, the brand might choose to offer new experiential services by opening a theme park, selling series-specific merchandise, or creating a virtual reality experience.
This type of expansion can help the brand delve into a variety of markets while maintaining its existing consumer base.
Taking advantage of technical manufacturing capability
Consumers recognize a computer corporation for continuously releasing cutting-edge items with great technological capabilities. As the company’s potential for producing technological items grows, it may seek to diversify its offerings to avoid overspecialization in computing equipment.
They may decide to start selling similar products such as smartphones, electronic music equipment, virtual reality sets, smart appliances, watches, and cameras because they have the potential to make high-quality technical products. This can help them expand their business, fend off competition, and boost profits.