When a firm diversifies into some business, which is related with its present business in terms of marketing, technology, or both, it is called concentric diversification. When in concentric diversification new product or service is provided with the help of existing or similar technology it is called technology-related concentric diversification. For example, Mother dairy has added ‘curd and Lassi’ to its range of milk products. In marketing-related concentric diversification, the new product or service is sold through the existing distribution system.
Concentric diversification is suitable for the following purposes:
(a) When cyclical fluctuations in the present products or services are to be counteracted;
(b) When the cash flows generated by the existing product or services are in surplus;
(c) When demand for present product or service has reached saturation point;
(d) To gain managerial expertise in new field of business; and
(e) When reputation of present product or service is high and can be used for new products or service.