What is Product Diversification?

Product Diversification

Share This...

Product Diversification

Product diversification is a business growth strategy that involves adding new products or services to the existing business offerings. The main goal of diversification is to allow the company to enter new markets, attract a larger customer base, increase sales and revenue, reduce risk by not relying on a single product, and capitalize on established reputations and brands.

There are four main types of diversification strategies:

  • Market Penetration: This involves selling more of the existing products or services in the current markets.
  • Market Development: This involves selling the existing products or services in new markets.
  • Product Development: This involves creating new products or services for existing markets.
  • Diversification: This involves creating new products for new markets. This could be related (where the new products are still within the boundary of the company’s current industry) or unrelated (where the new products are in a completely different industry).

It’s important to note that diversification can be risky, as it requires both market and product development and may involve stepping outside of the company’s existing core competencies. However, it can also lead to significant growth if successful.

An example of product diversification is when a company that traditionally only sold books, like Amazon, expands its product offerings to include electronics, household items, and even fresh groceries. Another example would be a restaurant that decides to sell branded merchandise such as T-shirts, hats, or sauces.

Example of Product Diversification

Let’s consider the case of Apple Inc., which is a great example of product diversification.

When Apple first started, its primary product was the Apple I computer, targeted at individual users. As time passed, Apple diversified its product range by introducing different products and services:

  • Macintosh Computers: They expanded their computer range with various models of Macintosh computers.
  • iPod: In 2001, Apple entered the music industry with the iPod, an entirely new product category that was significantly different from its existing product line.
  • iTunes and App Store: To support the iPod and later products, Apple launched iTunes for music and video download, and the App Store for mobile applications.
  • iPhone: In 2007, Apple launched the iPhone, entering the smartphone market.
  • iPad: A few years later, Apple introduced the iPad, marking its entry into the tablet market.
  • Apple Watch: In 2015, Apple broke into the wearable technology market with the Apple Watch.
  • Services: More recently, Apple has diversified into services with offerings like Apple Music, Apple TV+, iCloud, and Apple Arcade.

Each of these steps has involved diversification — expanding into new products and new markets. By doing this, Apple has been able to reach new customers and significantly grow its business.

Other Posts You'll Like...

Want to Pass as Fast as Possible?

(and avoid failing sections?)

Watch one of our free "Study Hacks" trainings for a free walkthrough of the SuperfastCPA study methods that have helped so many candidates pass their sections faster and avoid failing scores...