Future Business Leaders of America (FBLA) Business Management Practice Test

Why do companies often diversify their markets?

1. To respond to civil rights movements

2. To balance poor sales in one area with better sales in another

3. Both a and b

4. Neither a nor b

The correct answer is: To balance poor sales in one area with better sales in another

Companies often diversify their markets primarily to balance poor sales in one area with better sales in another. Diversification allows businesses to spread their risks across different markets or product lines. If sales decline in one area, the performance of the company can still be supported by stronger sales in other regions or segments. This strategy helps stabilize revenue streams and mitigates the impact of market fluctuations or economic downturns specific to any single sector. Diversification can also provide businesses with the opportunity to tap into new customer bases and explore different revenue channels, thereby creating more sustainable growth prospects. While responding to social movements can influence a company's marketing and product strategy, it is not typically cited as a fundamental reason for market diversification. The primary focus remains on financial health and market stability, underscoring the importance of revenue balance across various segments.