How Does Product Diversification Work? | Jaian Cuttari

Diversification of products is a strategy used by companies to improve profitability and increase sales volume. It can take place at the business level or at the corporate level.

Diversification of the company's products at the business level - Expanding into a new segment of an existing industry.

Corporate-level product diversification - Extending beyond the scope of a company's current business unit into a new industry.

Among  four main growth strategies, diversification is one of them:

Strategies for Diversification

There are three types of diversification techniques:

Concentric diversification

involves adding similar products or services to an existing business. When a company primarily produces desktop computers begins manufacturing laptops, it is pursuing a concentric diversification strategy.

Horizontal diversification

According to the expert, Jaian Cuttari, diversifying horizontally involves offering new and unrelated products and services to existing customers. A notebook manufacturer that enters the pen market is pursuing a horizontal diversification strategy.

Conglomerate diversification

Conglomerates diversify by adding new products or services that are significantly unrelated and have no technological or commercial compatibility. The conglomerate diversification strategy of a computer company, for instance, entails producing notebooks.

Among the three types of diversification techniques, conglomerate diversification is the riskiest. The diversification of a conglomerate involves entering a new market and selling products and services to a new consumer base. These activities incur higher costs for R&D and advertising. Additionally, diversification strategies employed by conglomerates are much more likely to fail.

Why do Companies Diversify?

A company diversifies for a number of reasons, in addition to enhancing its profitability. 

For example, Diversifying mitigates risks in the event of a downturn in a particular industry.

Different options and products can be provided by diversification. According to the expert, Jaian Cuttari, Diversification can improve brand image and boost profitability if done correctly.