Vertical diversification is a corporate strategy in which the service and product portfolio of a company is expanded to include upstream or downstream economic levels (backward / forward integration).
Definition / explanation
Expansion of the production program of products from upstream or downstream economic levels (also called backward / forward integration). The so-called vertical range of manufacture is thus expanded.
A company not only offers the products of a very specific production stage, but also refines them, for example, for use by the end customer or offers the intermediate products that are created to other companies. This example is common in the food industry: Large dairies, for example, no longer just offer milk or buttermilk, but develop their own yoghurts, cheeses and other products made with milk.
The aim of vertical diversification is to be able to keep a higher proportion of added value in-house. The company therefore markets products or services from different stages of production at the same time.
In many cases, the diversification also serves to give the brand name a better sound and thus also to achieve an indirect advertising effect.