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Product Diversification

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PRODUCT DIVERSIFICATION

Michel Greiche
October 17rd, 2012

N
owadays, the business world is highly competitive. Companies strive to rise above their competitors and attract more customers. Some succeed while others fail. Many companies rely on product diversification, which can been considered as “any modification of a product that serves to expand the potential market which involves creating a new customer base, which by definition expands the market potential of the original product”. Diversifying can give rise to many benefits for a company such as increasing their profit and client base. Knowing how and when to diversify as well as targeting the appropriate group of clients is critical when creating new products. Certain companies chose to rely on related diversification, which is defined by the manufacturing of new products that are similar to the original product line of the company. Other companies rely on unrelated diversification, which is the manufacturing of new products that do not correspond to the original field of production of the company. Many theorists argue that it is good for a company to diversify, whereas some suggest otherwise. From this controversy, a question arises: should a company rely on unrelated diversification to attract new customers and maintain its current client base? The answer is no. A company should engage in related diversification in order to attract a wider clientele while ensuring its current customer loyalty.

Although diversification is a good strategy, one must follow specific rules and establish an action plan before doing so. Diversification can occur at different levels, meaning that a company can diversify its product pricing by offering different qualities of...

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