Product diversification definition
/What is Product Diversification?
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.
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Product Diversification Techniques
There are a number of ways to engage in product diversification, including the options noted below. 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.
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 that is sold through department stores.
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. This can result in a flagship product at the top end of the product line, which can be heavily advertised. The result is greater customer recognition of the entire product line; in addition, some of the luster of the flagship product may rub off on the other products in the 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, as well as in several sizes, and with different features. This is an especially profitable option, since it builds on the same basic underlying product platform; as a result, the company can benefit from volume purchase discounts and economies of size that reduce its per-unit costs.