Which of the following best describes diversification strategy?

A diversification strategy is best described as a risk-reduction strategy by adding new products and services. This approach involves expanding a company’s offerings into new markets or industries, which can reduce reliance on existing products or services and thus spread the risk. By introducing new products or services, a firm ensures that it is not overly dependent on a single revenue stream, allowing for greater stability in the face of market fluctuations. This strategy can help companies tap into new customer bases and enhance overall growth potential.

The other options do not align with the purpose of diversification. For instance, focusing solely on increasing market share in existing markets reflects a concentration strategy rather than diversification. Similarly, strategies that prioritize cost-reduction or cutting operational costs tend to focus on efficiency within a single market rather than expanding into new areas or product lines, which is central to the concept of diversification.