Final Answer:
Increased Revenue Streams: A broad product mix allows a company to cater to diverse customer needs, thereby expanding its customer base and generating increased revenue from various product lines.
Risk Mitigation:Diversification through a broad product mix helps in spreading risk. If one product faces a decline in demand or market volatility, other products within the mix can compensate, reducing overall business risk.
Step-by-step explanation:
A broad product mix enables a company to tap into different market segments, widening its customer base. For instance, if a company sells smartphones, accessories like cases, chargers, and headphones can complement the core product. If the smartphone market saturates, revenue from accessory sales can compensate for any decline. Calculating the revenue potential: Suppose the company sells 1000 smartphones at $500 each, generating $500,000. Simultaneously, selling 500 accessories at $50 each yields an additional $25,000. Therefore, a diversified product mix contributes to a total revenue of $525,000, minimizing dependency on a single product category.
Moreover, a broad product mix aids in risk mitigation. For example, a company manufacturing both high-end and budget-friendly laptops will have varied price points catering to different consumer segments. If economic downturn affects sales of premium laptops, sales of budget laptops can remain steady due to price sensitivity. Thus, by diversifying product offerings, the company minimizes vulnerability to market fluctuations and sustains profitability.
Additionally, a diverse product mix reduces reliance on a single supplier or manufacturing process. If a disruption occurs in the supply chain for one product, other products within the mix can still be available, preventing a complete halt in operations and revenue loss. This redundancy safeguards against potential disruptions and strengthens the company's resilience in the market.