Product Differentiation
Product differentiation involves differentiating
products from competitors' products as well as one's own product offerings
and is the process of distinguishing the differences of a product or
offering from others, to make it more attractive to a particular target
market.
Differentiation is a source of competitive
advantage. Although research in a niche market may result in changing
your product in order to improve differentiation, the changes themselves
are not differentiation.
Marketing or product differentiation
is the process of describing the differences between products or services,
or the resulting list of differences. This is done in order to demonstrate
the unique aspects of your product and create a sense of value.
Marketing textbooks are firm on the point that any differentiation must
be valued by buyers (e.g.). The term unique selling proposition refers
to advertising to communicate a product's differentiation.
In economics, successful
product differentiation leads to monopolistic competition and is inconsistent
with the conditions for perfect competition, which include the requirement
that the products of competing firms should be perfect substitutes.
The brand differences are
usually minor; they can be merely a difference in packaging or an advertising
theme. The physical product need not change, but it could. Differentiation
is due to buyers perceiving a difference, hence causes of differentiation
may be functional aspects of the product or service, how it is distributed
and marketed, or who buys it. The major sources of product differentiation
are as follows.
 Differences
in quality which are usually accompanied by differences in price
Differences
in functional features or design
Ignorance
of buyers regarding the essential characteristics and qualities of goods
they are purchasing
Sales
promotion activities of sellers and, in particular, advertising
Differences
in availability (e.g. timing and location).
The objective of differentiation is to develop a position that potential
customers see as unique.
Differentiation primarily impacts performance through reducing directness
of competition: As the product becomes more different, categorization
becomes more difficult and hence draws fewer comparisons with its competition.
A successful product differentiation strategy will move your product
from competing based primarily on price to competing on non-price factors
(such as product characteristics, distribution strategy, or promotional
variables).
Most people would say that
the implication of differentiation is the possibility of charging a
price premium; however, this is a gross simplification. If customers
value the firm's offer, they will be less sensitive to aspects of competing
offers; price may not be one of these aspects. Differentiation makes
customers in a given segment have a lower sensitivity to other features
(non-price) of the product.
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