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. 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.

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