What Is Product Diversification? Definition & Strategies

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Product Diversification

Definition of Product Diversification

Product diversification refers to the business strategy of developing and offering a new line of products, a service, or a product division that uses the same or completely different sets of information, skills, machinery, and so on, usually to enable survival or development and expansion. 

What Is Product Diversification?

To stay relevant and successful, businesses must keep a close eye on current market trends and product success.

When businesses see an opportunity to expand their product lines for greater marketability, they frequently embark on a process called product diversification. 

Product diversification can help organizations grow their brand’s presence by expanding a product’s present market. 

This article defines product diversification, discusses why it is essential for organizations, the strategies and types of product diversification, and presents practical examples of diversifying your products.

So what is product diversification? 

Product diversification is a company’s strategy for increasing profitability and sales volume through new products or expansions.

You can implement product diversification at two different levels. One is the business level, while the other is the corporate level. 

Let’s understand what these two levels of diversification are: 

Business-level product diversification refers to expanding into a new section of an industrial category the company already operates in. 

For example, suppose your company operates in the SaaS industry, providing portfolio management tools. In that case, you may now expand and offer product management software for product managers

Corporate-level product diversification refers to expanding into a new industrial category where the company doesn’t currently operate. 

For example, suppose you’re a company like Chisel, working in the SaaS industry. In that case, you may expand into a new industry such as education or finance. 

The level at which you diversify your product or service depends on your market research and product portfolio management

Product diversification is one of the four growth strategies given in Igor Ansoff’s product/market matrix. The four strategies include market penetration, product development, market development, and product diversification. 

Let’s not confuse product development with product diversification. They are two different processes. You must understand the difference between the two. 

Difference Between Product Development and Product Diversification.

The main difference between product development and product diversification is that product development creates a new product or improves an existing one. In contrast, product diversification is the process of marketing new products to existing markets.

With product development, you are targeting a specific market with a particular need and trying to fill that need with a new or improved product. 

With product diversification, you take your existing products and market them to new markets to expand your customer base.

While product development and diversification are different, they include equal amounts of risks and opportunities for your company. 

Also, a product development manager usually heads the product development process. However, based on product diversification, different teams may manage it. 

What Are the Best Product Diversification Strategies?

Now that you know enough about the meaning of product diversification, let’s understand the strategies. 

Here are some of the best product diversification strategies:


Companies can repackage their products to diversify their offerings. 

The way you display your products on the shelf can considerably impact their marketability to different groups or demographics of customers. 

Repackaging could mean redesigning your platform or website for software or digital products.

This is especially true for versatile products that are only promoted for a single purpose or to a single sort of person. Companies can theoretically expand the market for a product line by changing how they advertise it.


Sometimes, businesses vary their products by altering prices or repositioning them for different sales channels. 

Repricing a product at a reduced cost is a rare product diversification approach, whereas raising a product’s price is more usual. 

For example, if a corporation wants to sell its product at a higher price, it may produce a similar version targeted at higher-end stores. 

These products may have minor changes to the materials used in their creation or how the corporation styles them in marketing campaigns.

For example, while Chisel offers a ‘free forever’ version of its product management tools, we also have pricing plans that provide different service levels.


Companies rebrand things to make them more marketable on a global scale.

Renaming products, like repackaging, might assist attract new buyers who speak various languages or prefer different modes of product marketing

Your diversified product is identical to the original but under a different name or brand.  

Companies can sell their products more efficiently in various locations by renaming them and aligning their marketing strategies with local cultural norms.

Companies often rename products to make the brand sound more relatable to the user. 

Perhaps Shakespeare was wrong when he said, “What’s in a name?”


Diversifying products by resizing them is a typical practice. 

Some businesses sell products in standard sizes or quantities but may alter their sizes to appeal to a broader range of customers. 

For example, if a business sells vast amounts of its products to wholesale merchants, it may start selling lower quantities to appeal to a smaller retail market. 

On the other hand, companies may expand the size of their products to advertise them to value buyers who want to save money by buying in bulk.

Product extension 

You can use the strategy of product extension to diversify products. 

Companies expand their product lines by offering multiple variations of the same item, such as alternative styles or colors. 

You may also sell different versions of the same product with additional upgrades. 

This method may help attract customers interested in acquiring products with specific aesthetic preferences or sophisticated features.

Brand extension

Companies can add higher or lower-end options to their product line to broaden their existing brand of products. 

Companies that make high-priced or luxury goods, such as vehicles, laptops, jewelry, smartphones, and other items, sometimes employ brand extension as a strategy. 

These products may meet the needs of a diverse economic demographic of customers. 

Consumers who may not be able to justify expensive purchases but are interested in similar things that align with the brand’s quality and name might benefit from brand expansion.

What Are the Types of Product Diversification?

It’s time to understand the types of product diversification. Only when we know the product diversification types will we be able to understand the strategies. 

There are three types of product diversification: 

Concentric Product Diversification

Concentric diversification means expanding an existing business with similar products or services. 

Concentric diversification is at play when a computer company that typically manufactures desktop computers begins to manufacture laptops.

Horizontal Product Diversification

Horizontal diversification includes offering existing customers new and unrelated products and services. 

A notebook manufacturer entering the pen business, for example, is adopting a horizontal diversification strategy.

Conglomerate Product Diversification

Conglomerate diversification refers to adding new products or services that are fundamentally unrelated and have no technical or commercial parallels. 

A computer manufacturer, for example, that decides to develop notebooks is adopting a conglomerate diversification strategy.

Why Is Product Diversification Essential?

There are many reasons why product diversification can be beneficial for businesses. 

First and foremost, it can help to reduce risk. If one product line fails, the company will still have other products generating revenue. 

Additionally, product diversification can help businesses to achieve economies of scale. A company can spread its assets across multiple investments by producing various products. 

Thirdly, it helps in optimizing the resource capacity of the company. 

Product diversification also helps enhance your product portfolio and manage stakeholder expectations better

Diversification helps a company with change management while shifting economic conditions. 

5 benefits of Product Diversification

Of course, offering a segmented niche product is an excellent strategy when you’re just starting. However, as you scale your business, product diversification becomes essential. 

How To Implement Product Diversification? 

You can diversify your products through any of the abovementioned strategies and types of product diversification. 

However, you must decide your approach before you pick out a strategy. 

There are two approaches to diversifying your products: 

  1. New Markets
  2. New Products

Let’s understand these. 

New Markets

The first approach is to find new markets. When we say new markets, we don’t just mean geographical locations. 

Diversifying into new markets can include any of the following: 

  1. Age range.
  2. User persona.
  3. Business size.
  4. Economic class.
  5. Niches.
  6. Moving from B2C to B2B.

Remember that if you explore a new market with your current product, you’ll almost certainly need to change it for better market validation

New Products

The second approach is to develop new products that cater to your target market. 

Spending time with your research and development (R & R&D) team is essential. Look at your product feedback and see whether or not you’ve achieved customer success

While developing a new product, prioritizing customer ideas in your product roadmap is essential.

Product roadmap tools like Chisel offer segments for feedback that help you track how your product is doing. You can try it for free today! 

Once you’ve decided which approach is most suitable for your company, you can proceed to implement a complementary strategy from the ones we’ve already discussed. 

What Are Some Product Diversification Examples?

Let’s look at some popular and relevant examples of product diversification. These are sure to motivate you!

General Electric, Disney, and the Tata Group are well-known examples of product diversification. 

GE expanded into aviation, healthcare, the digital sector, venture capital, and finance from an electricity-focused business. 

Similarly, Walt Disney expanded his company’s business from animation to amusement parks and film and television production. 

The TATA Group began in the steel production business and has expanded into other industries such as hotels, aviation, automobiles, and energy.

If you’re looking to diversify your products, it is vital that you first have a thorough grasp of what your internal team thinks. Product management tools like Team Radar can help you keep track of your stakeholder’s opinions. 

Try Chisel free forever and transform your product journey today! 


What Are the Advantages of Product Diversification?

Product diversification can be a great way to grow a company. When a business offers a variety of products, it becomes less reliant on any one product line for success. If one fails, the others can bring in revenue. A diverse product line can attract various customers.

Should We Diversify the Product or Not To Diversify?

Diversification is never child’s play, and companies must carefully consider their options. Strategic planning toward product diversification can give you a competitive advantage. However, poor foresight or not using evidence-based management can set you up for failure.

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