Certified Financial Management Specialist Practice Exam

In a product-extension merger, what do the companies typically offer?

1. Same products in different markets

2. Different but related products in the same market

3. Directly competing products

4. Unrelated businesses

The correct answer is: Different but related products in the same market

In a product-extension merger, companies typically offer different but related products in the same market. This strategy allows firms to broaden their product lines and leverage their existing customer base while creating synergies that enhance cross-selling opportunities. By merging, the companies can enhance their competitive position, capitalize on the shared market presence, and potentially increase their market share by appealing to a wider array of customer preferences within a related product category. For instance, if a company known for producing yogurt merges with another that specializes in related dairy products, such as cheese or ice cream, both could benefit from existing customer recognition and distribution channels. This facilitates a more streamlined expansion of their offerings without venturing into completely unrelated product areas. The other options reflect different types of mergers; for example, the same products in different markets suggest a geographic expansion strategy rather than a product extension. Directly competing products would imply a horizontal merger, and unrelated businesses would indicate a conglomerate merger, neither of which fits the definition of product-extension mergers focused on product complementarity within the same market.