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Research summary: This study explores the relationship between business model diversification (BMD) and firm performance from a demand-side perspective. We focus on the addition of a business model with a high degree of demand complementarity, which we refer to as demand-related argue and show that demand-related BMD increases firm performance and is more profitable than demand-unrelated BMD. We also explore external market conditions under which demand-related BMD should lead to greater performance improvements. Our results reveal that demand-related BMD is more profitable in markets with higher demand heterogeneity-as fostered by increases in consumer incomes-and increased technology availability that enables consumers to act on their heterogenous preferences. K E Y W O R D S business model, demand-side perspective, diversification, firm performance, retail sector

Research Summary This study develops a framework providing guidance in examining when exit decisions might be driven by resource redeployment versus divestment. Exploratory analyses of the global retail sector show patterns largely consistent with conventional explanations of exit through divestment. We also provide the first large‐scale empirical evidence consistent with redeployment motives of exit. In particular, by focusing on the potential for redeployment of fixed assets (i.e., physical stores) across portfolio businesses, results show that market exit is more likely when there are combinations of lower resource adjustment costs, higher external transaction costs, and positive inducements. Under the same conditions, we also document a strong correlation between the number of fixed assets of an exiting business and the growth in fixed assets of its surviving siblings. Managerial Summary It is increasingly recognized that multibusiness firms have flexibility advantages over single‐business rivals, because they have the option to redeploy resources across businesses. This flexibility is purported to inspire quicker exit from markets, even if empirical evidence is lacking. We test this conjecture on 3,082 retail chains across 106 countries and find evidence consistent with this view—each additional related sibling in a country raises the hazard of country exit by 11% relative to retail chains without siblings. Since it is difficult to distinguish whether exit occurs through resource redeployment or divestment, we identify a set of unique determinants for each exit mode. Our theoretical framework and empirical findings help managers reconcile when to exit using internal resource markets versus external markets.