Owning a retail establishment requires ingenuity and innovation to attract new customers and persuade old ones to stick around. And sometimes, the best thing you can do to ensure success is broaden your horizons. For example, diversifying your products is an excellent way to stay current and compete in retail markets. Explore product diversification and discover how this clever strategy can positively impact your business.
What Does It Mean To Diversify, and Why Do Businesses Do It?
Understanding the importance of product diversification in retail starts with knowing what it means to diversify. In basic terms, product diversification is a method that helps companies expand the scope of their original markets.
Typically, this means adding new elements to existing product lines. Many establishments use product diversification to improve the accessibility and profitability of their offerings. But retail businesses also find this strategy invaluable for addressing numerous market factors, such as:
#1. Development in Technology
Product diversification can be beneficial when developments in technology impact a particular market. For instance, suppose a software solution company’s best-selling payment systems become outdated due to technological advancements.
Then, investing in up-to-date point of sale systems for a retail business can provide a viable solution. As a result, that business can adapt and modernize their products to fit the current market. And they can even begin to catalog a broader range of products to offer their customers.
#2. Discoveries in Research and Development
Investing in research and development efforts is critical for retailers to keep their businesses current and profitable. Thus, it’s not uncommon for companies to uncover potential for new products that correlate well with existing markets. Inherently, the findings of this research shed light on recent trends, product gaps, and the like. This insight empowers business owners to capitalize on this potential through diversification.
#3. Desire To Expand Markets
Of course, one of the primary factors that push companies to invest in product diversification is the desire (or need) to expand their markets. Many retailers start by selling niche products to a small customer base. This is a fantastic start! But it’s no secret that once a business begins to take off, developing new products is the next step.
This is especially true considering how essential it is to keep up with a rapidly growing market that demands ingenuity. Because of this, retail establishments will often lean into diversification and expand or modify their existing product lines. This allows them to continue serving their original customer bases while attracting new ones.
Benefits of Product Diversification
Of course, there would be no discussion on the importance of product diversification in retail without mentioning the numerous ways it can benefit establishments of all shapes and sizes. There are many advantages that come with this strategy. Below are a few of the most impactful.
#1. Risk Mitigation
Product diversification can also help retailers with risk mitigation. Perhaps you sell hats and scarves exclusively. You do well for a while. But after some time, there’s a considerable downturn in your products’ profitability.
In this case, adding belts, purses, shoes, and fine jewelry to your catalog can help reduce financial risks to your company. This is because you’ve effectively broadened the scope of your products to serve a wider range of customers. This is yet another reason product diversification is crucial for any retail business.
#2. Brand Strength
The opportunity to strengthen your brand is another incredible benefit of this particular strategy. How? Well, product diversification can assist companies in building solid brands while also improving visibility. Typically, customers are more likely to remember and identify with a brand with various offerings.
Perhaps you’re in constant competition with an establishment that offers similar products to yours. But market research indicates that your competitor doesn’t provide a particular item that your customers need. In this case, taking the opportunity to add that product to your inventory can give you a leg-up on the competition. Undoubtedly, this can serve as an enormous help to retail businesses looking to increase profits, brand loyalty, and awareness.
#3. Protection and Stability
There’s no denying that the retail industry is competitive. For this reason, ensuring that you have a versatile selection of products can protect and stabilize your establishment’s position in fierce markets. Companies are more likely to remain profitable when they increase their options, regardless of who’s competing with them.
This is because a wider range of customers can benefit from a more versatile selection. As a result, companies have an easier time protecting themselves against encroaching competitors and stabilizing their hold in current markets.
Methods of Product Diversification
This guide wouldn’t be complete if we didn’t take some time to discuss the specific methods establishments can use to broaden the scope of their business. Believe it or not, it goes beyond adding a few new things to your inventory. In fact, there are many innovative ways to diversify, and we’ve listed a couple of them below.
#1. Repackaging Products
Retailers can take advantage of product diversification by repackaging some of their products. After all, most of us are far more likely to purchase an item when its packaging is aesthetic and on-brand. Many companies also use this type of diversification to improve the marketability of their products.
For example, you might offer multi-purpose products, like French presses. However, the current packaging only advertises their ability to make coffee. Plus, the aesthetic appeal of it is dull. If this is the case, consider switching things up and using packaging that accentuates the multi-faceted features of your French presses. Couple that with a dynamic and exciting box to wrap it in, and you have a recipe for increased profits.
#2. Renaming Products
Product diversification also applies to how establishments sometimes rename certain products to market them more effectively or emphasize their value. Renaming products can help retailers draw customers in from a wide range of geographical regions. In particular, companies use this tactic if they’re trying to market their products internationally.
In these situations, the items themselves remain the same. However, companies alter the names to align more closely with the local markets and cultural norms of the regions an establishment targets. Thus, businesses can sell their products more efficiently on international markets. And this will lead to continued success.