In hyper-competitive markets, it is essential for companies to regularly monitor market trends and product success. This approach will help ensure better profitability and remain relevant in the market. Depending on the market trends and customer needs, many companies are compelled to expand their product lines horizontally as well as vertically using different strategies. One such strategy is product diversification which can help companies improve their brand recognition by expanding the existing market for a product.
Read on to learn more about product diversification and its important aspects.
What is product diversification?
Product diversification is a process employed by companies to further enhance the market scope for a product beyond the original plans. In most circumstances, product diversification requires the addition of a unique component to a product line that already exists. This component can be a new technology, associated product line, or expanding the distribution of the product to new markets. The overall goal of product diversification is to improve the saleability and profitability of an existing product line.
Generally, product diversification can occur at two levels,
- Business level: – Herein, the company expands its product line into a new industry segment in which the entity is already active.
- Corporate level: – Herein, the company expands its product line into a new industry segment where the entity is presently not operational.
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Why is product diversification important in sales and marketing for growth?
When it comes to competitive sectors, product diversification holds the key to ensuring the success of sales and marketing campaigns. Here are some of the reasons that necessitate product diversification in sales and marketing: –
- Optimal utilization of resources: – Product diversification is extremely important to allow a company to make the most of available marketing opportunities. There are numerous resources present in the market that can be used for business expansion. Through product diversification, companies can ensure optimal utilization of production and marketing channels, driving growth into the future.
- Consistent Income: – Product diversification can help with ushering in stability in the growth and earnings of an entity. This approach helps maximize the sales of the products offered by the company by catering to all customer requirements in a better manner. In case the market is undergoing the maturation process, through product diversification, the company can mitigate various essential risk factors.
- Profit Maximization: – To ensure better profitability, it is important for a company to always explore new opportunities available in the market. Through product diversification, companies can boost their profits to the maximum by introducing new and different types of products that cater to customer needs in a better manner. This strategy can help the company attract new customers in newer segments.
- Lower Expenses: – In the case of product diversification, companies are basically adding new features to an existing product line. This ensures that the overhead expenses are lowered considerably along with the associated indirect expenses. This not only helps boost the company’s profitability but also offers opportunities to expand into newer markets with more financial resources at its disposal. Companies can effectively meet the demands of a wide range of retailers while keeping marketing expenses under control.
- Drive growth: – In hyper-competitive markets, companies need to constantly look for more customers to drive growth. With product diversification, companies can expand into newer market segments as well as newer geographical locations. This allows them the opportunity to attract newer customers to the fold. With more products on offer, the chances for the company to boost its sales are also improved.
Key Takeaways from the Uber Journey
Uber was and is the market leader when it comes to its position as a ride-sharing app. But during the pandemic, the company faced serious crises as people were locked in their homes, and there was no demand for cabs like before. As a result, the usage of the ride-sharing app declined by almost 80%, posing a threat to the company as well as the drivers.
This was when Uber made the decision to diversify into the food delivery sector through its food delivery service Uber Eats. This decision proved to be an instant success, and it served as the primary revenue driver for the company. As Uber is enjoying its success in the food delivery business, it is now planning an aggressive approach to further expand its product offering.
In this journey, Uber acquired its rival Postmates for $2.65 billion, enabling the company to strengthen its foothold in the sector where it is only behind DoorDash presently.
Now the company further diversified its operations and entered the grocery delivery sector the next. As grocery stores operated for limited hours, this service Uber was received well by the customers who could now order groceries at their convenience.
The product diversification from Uber served two purposes; first of all, it enabled the company to expand its revenue stream by expanding into the food delivery sector. As the restaurants were not receiving any footfall, this service was received well by the customers. Secondly, the existing pool of drivers from Uber was able to generate some income through this product diversification.
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