The phrase “Don’t put all your eggs in one basket” has often been used over the years to warn against relying on a singular solution to solve a set of challenges. This phrase exists, and it’s important for business owners because over-reliance on one solution means you risk destroying revenue if that one solution fails.
The good news is that product diversification can help business owners avoid falling victim to this trap, but diversifying your product offerings requires some thought and planning to get the most out of diversification. Below are some advantages of product diversification that can help you increase the average spend per customer while simultaneously future-proofing your revenue streams:
You Reduce Financial Risk
When you diversify your product offering, you reduce your company’s financial risk. Offering too many similar products can mean that a shift in market conditions can put your company’s entire growth strategy at risk. Whether this shift is due to changing social sentiment, a shift in buying habits due to the economy, or something else entirely, being locked into one product leaves your brand at risk when these shifts occur.
While you may have planned out the next five years of growth and revenue gains based on the success of product lines related to one type of product, a sudden shift in market conditions that negatively affect sales essentially neuters your revenue streams and leaves you with little recourse but to either start over from scratch or wait out your customer base for a return to normal conditions. Depending on the cause of this shift in market conditions, your company may find itself waiting years for a recovery, and many businesses can’t withstand that kind of wait.
You Gain More Upsell and Lateral Sales Opportunities
Among the other advantages of product diversification, the ability to upsell or offer lateral sales opportunities can mean more average spending per customer. Offering a single product generally means that a customer makes a purchase, and that’s the end of that transaction. By diversifying, your sales professionals can open the door to other solutions that complement existing products.
This has the effect of improving customer lifetime value as well if your product line is diverse enough to keep customers buying more products for a longer period of time. One way to leverage this is to consider how your product features intersect and interact. This way of thinking should be implemented from the research and development stage as you plan out the lifecycle of each product.
The goal is to find ways to sell other products based on the features included in one product. If you can create a need or desire for multiple products based on the advantages of a singular product, you expand sales opportunities in the future through product diversification.
You Increase Market Share
Something else to consider when thinking about the advantages of product diversification is your brand’s market share. When you offer a broad range of products in one market, you capture a greater share than competitors using only one product offering. Many large companies diversify their products to utilize this same strategy.
For instance, Coca-Cola owns Smart Water and Dasani, two leading bottled water brands. This gives Coca-Cola an edge in the retail beverage market since consumers who purchase a can of Coke or a bottle of Smart Water are still contributing to Coca-Cola’s revenue.
Beyond that, Coca-Cola owns a larger market share due to having diverse range of bottled water brands. This brings with it the ability to steer the market to some degree and form more advantageous partnerships. Despite how big Coca-Cola is in the soft drink sector, the brand would not have as much sway without market and product diversification.
You’re Able to Meet Needs More Quickly
When your company can diversify its product offerings, it can meet customer needs faster. Only offering one product line or specific product locks your company into a limited number of strategies for sales and growth.
When your company can adjust to a changing market segment by having diverse solutions available, it can react faster to shifts and meet the needs of your customer base faster. If one product doesn’t meet a particular customer's or market segment's needs, you have additional products available that can fill the need.
Likewise, as technology evolves and new technologies come, not as much time needs to be spent on research and development. Since a business can look to other products to meet the needs of customers who expect your brand to keep up with changes in technology, you can be ready to adapt to new technologies as they come along instead of trying to retrofit existing products with new technologies.
You Expand Your Brand’s Marketing Opportunities
A diverse product line also means that you can expand your marketing strategy. When you only offer a single product or type, your marketing efforts are somewhat limited to the existing product and its benefits. When you offer a diverse range of products, you can now access different marketing strategies that promote your brand as a whole instead of just a singular product.
Market diversification opens up the door to new marketing opportunities as well. A marketing strategy that involves reliance on digital assets alone may work well to promote one product in one market. Still, this strategy may not work so well in other markets. This can mean your business is losing visibility in other markets. Still, by diversifying and offering different products for different markets, you now have expanded opportunities to promote your company to new customers. This obviously equals greater revenue opportunities and the ability to develop even more new products and grow your company.
Capitalizing on Product Diversification: Final Thoughts
The advantages of product diversification are numerous, and digital marketing can play a key role in promoting them. Not sure how your business stacks up against the competition? Schedule a 15-minute discovery call with a Business Growth Advisor today.