What is Product Diversification? - QS Study
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Product diversification is the practice of expanding the original market for a product. This strategy is used to increase the sales associated with an existing product line, which is especially useful for a business that has been experiencing stagnant or declining sales.

Product Diversification is the process of expanding business opportunities through additional market potential of an existing product. Diversification may be achieved by entering into additional markets and/or pricing strategies. Often the product may be improved, altered or changed, or new marketing activities are developed. The planning process includes market research, product adaptation analysis and legal review.

 

There are a number of ways to engage in product diversification, including the following:

  • Repackaging. The manner in which a product is presented can be altered to make it available to a different audience. For example, a household cleaning product could be repackaged and sold as a cleaning agent for automobiles.
  • Renaming. An existing product could be renamed, perhaps along with somewhat different packaging, and sold in a different country. The intent is to remain true to the original purpose of the product, but to adjust it to match the local culture.
  • Resizing. A product could be repackaged into a different size or standard selling quantity. For example, a product normally sold as a single unit could be packaged into a quantity of ten, and then sold through a warehouse store.
  • Repricing. The price of a product can be adjusted, along with other improvements, to reposition it for sale through a new distribution channel. For example, a watch movement could be inserted into a platinum casing and sold through jewelry stores, rather than its original positioning as a sport watch.
  • Brand extensions. It may be possible to extend an existing brand at the low or high end, or fill in a hole somewhere in the middle of the product line. For example, a car company decides to build a sports car that is positioned at the top end of its product line.
  • Product extensions. It may be possible to sell several versions of the same product, perhaps by adding additional features or by offering the product in different colors. For example, a smart phone may be offered in several colors.

 

Product diversification can be expensive, especially when launching it broadly in a new market. Consequently it can make sense to launch in several test markets to determine customer acceptance before rolling out a new concept more broadly.