What is Concentric Diversification?

Concentric diversification is one of several different diversification strategies used by companies to increase their appeal to consumers. With this particular approach, the business will attempt to increase market share by introducing a range of new products that are likely to not only attract the attention of existing clients but also draw in new customers. Sometimes referred to as convergent diversification, the goal is to motivate current customers to keep purchasing the company’s older products while also choosing to purchase the newer products. At the same time, the effort also brings in new clients who have no relationship with the older products, based on the appeal of the recently launched product line.

With concentric diversification, it is not unusual for newer products to have some relationship to the existing product line. For example, a company that has established a steady clientele for its paper plates may choose to add other product lines that can be used along with the plates. This may include a line of color-coordinated disposable drinking cups, napkins, and even plastic cutlery and disposable tablecloths. The idea is to entice customers who already buy the plates to purchase the other goods to use at the same time. This approach may also appeal to new customers who want to create a coordinated look when enjoying a casual dining experience, such as an outdoor picnic.

In some instances, concentric diversification will involve opening new markets by creating a variation on a product line that has already established a loyal clientele in a particular market sector. Using this approach, a company that currently offers commercial cleaning products used by professional cleaning services may choose to launch a similar line of products that appeals to households. In some cases, the branding for the new line may be reminiscent of the older commercial line, making it possible for people who already known and trust the older products to try the newer line at home. Assuming the new line provides an acceptable level of satisfaction, the manufacturer will expand its client base into a new market sector, effectively increasing its profit margin and making a success of the concentric diversification effort.

The general principal of concentric diversification can also translate easily into other settings. When it comes to investment portfolio diversification, an investor may choose to include a series or group of stocks issued by companies that operate in similar markets, such as buying stock in a telephone company and also in a conference call bureau. The approach allows the investor to enjoy similar returns from both investments since there are some consumers who would make use of both types of telecommunication services.