DECA Retail Merchandising Practice Exam

What is the main focus of diversification in retailing?

1. Improving supplier relationships

2. Introducing a new format to a new target market

3. Expanding within the same market

4. Building customer loyalty

The correct answer is: Introducing a new format to a new target market

Diversification in retailing primarily involves introducing a new format to a new target market. This strategy allows retailers to spread their risk by not relying solely on their existing customer base or product offerings. By reaching out to different market segments or creating new retail formats, businesses can explore new revenue opportunities and adapt to changing consumer preferences and trends. For instance, a clothing retailer may decide to branch out into home goods, thereby targeting a completely different customer demographic while also leveraging its existing knowledge of retailing. This approach not only helps in mitigating risk by diversifying the product range but also promotes growth in areas that might not have been previously tapped into. The other options focus on enhancing aspects within established boundaries, such as improving existing supplier relationships, which does not address the broader goal of diversification, or building customer loyalty, which is more about retention than expanding into new markets. Expanding within the same market does not align with the concept of diversification, which fundamentally aims to venture into untapped markets or new product categories.