Market Diversification Vs. Product Diversification

by Neil Kokemuller; Updated September 26, 2017
Adding new items to a restaurant menu is an example of product diversification.

Market diversification and product diversification are similar in that both are marketing strategies used by companies to grow or expand their business opportunities. Market diversification means extending your business offering to new market segments not previously targeted. Product diversification means adding new products or services to expand the business offering within existing markets. Both are effective growth strategies, but they also bring some risk.

Market Diversification Benefits

The Business Dictionary definition of diversification highlights common reasons companies diversify markets. Along with general growth objectives, companies use market diversification to find additional income sources and to challenge a competitor. Spreading your business risks across multiple market segments lowers the potential of major failure if a market dries up or becomes less fruitful over time. Moving into a market well occupied by a competitor often makes sense because the market is familiar with the offering and you just need to market your better value.

Market Diversification Challenges

In the article "Market diversification vital for MSMEs to grow: Experts" for Now Public, Namrata Kath Hazarika notes that some common concerns expressed by companies considering market diversification involve the high costs of entering a new market, the differences in cultures and the existence of unknown problems. The costs of entering new markets include research and planning, marketing and advertising, and other activities needed to sell to a new segment. Understanding cultures in different domestic regions, and especially across global boundaries, makes marketing your benefits a challenge. And the unknown elements of operating in a new market are hard to plan for.

Product Diversification Benefits

New products also offer additional revenue sources and spread risks across multiple products. Business Dictionary also points out in its definition that seasonal or cyclical companies can add new products as a way to fill in during off-seasons or slow seasons for their main product. Brands that have a strong recognition and presence are able to use established brand reputation as part of delivering the message about new product offerings.

Product Diversification Challenges

Entrepreneur notes that companies sometimes prefer a single product focus in the beginning. Thus, expanding into new products requires them to manage an additional product's development and marketing. Companies that have established expertise in producing and selling specific products are not automatically as good at producing and selling other types of products. Taking on a well-established product provider in a new market is especially challenging given that company's expertise in delivering their product to a particular market.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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