Product differentiation in the market
In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own products. The concept was proposed by Edward Chamberlin in his 1933 The Theory of Monopolistic Competition.
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Product Differentiation Defined
Product differentiation is a marketing strategy whereby businesses attempt to make their product unique to stand out from competitors. Businesses do this to gain an edge in industries where multiple competitors produce similar products. There are other methods businesses can employ to gain that edge, like pursuing a low-cost strategy and advertising, but while those are legitimate marketing strategies, they are different from product differentiation. Product differentiation means that some feature, physical attribute, or substantive difference exists between a product and all other alternatives.
What is 'Product Differentiation'
Product differentiation is a marketing process that showcases the differences between products. Differentiation looks to make a product more attractive by contrasting its unique qualities with other competing products. Successful product differentiation creates a competitive advantage for the product's seller, as customers view these products as being unique or superior.
BREAKING DOWN 'Product Differentiation'
Product differentiation can be as simple as packaging the goods in a creative way, or as elaborate as incorporating new functional features. Sometimes differentiation does not involve changing the product at all, but creating a new advertising campaign or other sales promotions instead.
Product differentiation determines what sets one product apart from other similar products, and it uses that difference to drive consumer interest. Product differentiation is often subjective, aiming primarily at altering customer perspective on one item when compared to another, even if the actual differences are minuscule or entirely aesthetic. Ideally, it demonstrates that the product cannot only do everything the competitor items can, but that there is an additional benefit, such as additional features, higher overall quality or a lower cost.
Lower Costs As a Differentiating Factor
Lower costs can relate to the initial purchase price or any operating and upkeep costs associated with the item. For example, if Company X produces a coffee maker with the same features as Company Y, Company X may choose to offer a lower selling price for its coffee maker to differentiate it from the competitor. If the accessories or disposable parts of Company X’s offering cost less than Company Y’s, that can differentiate between the two products.
Non-Functional Product Differentiation
When functional aspects of two products are identical, other non-functional features can be highlighted. This can be a simple as a change in design or styling, such as the product's color. At times, the most effective way to make one product stand out from another is with unique advertising. In that regard, it may be possible to differentiate one brand from another when no discernible differences in the products actually exist.
Effect of Product Differentiation
Aside from bringing in consumer interest, product differentiation may increase brand loyalty and even allow for a higher price point. If a product is perceived to be better than a competitors, whether that belief is based on fact or more speculative means, it may encourage consumers to purchase the brand due to its image. Certain images may even allow for a higher selling price if the item is seen as highly desirable.
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http://www.investopedia.com/terms/p/product_differentiation.asp
What is product differentiation?
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Why is product differentiation important?
For brands, the field of competition is more crowded than ever. When faced with too many choices, consumers can be overwhelmed, and often walk away rather than make a difficult decision. That is why it is imperative to find a way for your product to stand out and be considered uniquely valuable.
You want it to be crystal clear to your customers what you are offering and how your product compares to competitors. If you have other products, you also want to make sure each product has a clearly defined identity to eliminate confusion for customers. Creating a differentiated product which appeals to your target market can help to build your competitive advantage over other brands.
What are some ways to differentiate your products?
You do not want to be different just for the sake of being different. Instead, consider what matters most to your customers, and let that drive your decisions on how to differentiate your product. Your product differentiation should arise after careful study, and should be part of your larger strategy for the product. With that said, here are some common ways that a product can stand out:
Benefits
What value can customers expect to gain from using your product compared to others? What problem is the product going to solve? How is it going to make their lives better? For example, yours may be the only brand offering a mobile app that saves actual time from an activity that parents must do (but do not like) every day.
Design
Does the product have a different design that distinguishes it from the rest? For example, your product is sleek while your competitors' offerings appear clunky or dated. This distinction may help customers connect with your brand. For example, think about the modern design sensibility of the Nest thermostat. Instead of copying the rectangular shape of other thermostats, the company opted for a simple circle with an easy-to-read, color-changing display. This fresh take on an old idea helps the company sets their product apart and gain a competitive advantage.
Price
Is your product priced lower or higher than your competitors' products and other products you offer? Your price should reflect the overall value that you are offering in the product. For example, you can justify a higher price if customers recognize that the product offers unsurpassed quality. This is how a luxury brand like Ferrari can command a top asking price for their cars. Ask too low of a price, however, and customers may not see your product as truly valuable.
Quality
Does your product simply work better than your competitors' products? Do you offer some functionality that your competitors do not? Can users expect the product life to last longer than other products? Your product's competitive advantage may indeed prove to be superior construction and dependability.
Customer service
Your product may be similar to others in many ways. However, you can differentiate your whole offering — and build your competitive advantage — by assembling a stand-out support team and earning a reputation for being ultra-responsive to customers' needs.
For example, the #1 core value for Zappos is "Deliver wow through service," and they succeed — even though Zappos does not always have the lowest price. A customer who orders by midnight may receive their package by the next morning. This emphasis on customer service pays off — judging by the fact that 75% of their sales are reportedly from repeat customers.
Remember, the way you differentiate your products should not be an arbitrary decision, or a knee-jerk response to whatever your competitors are doing. Rather, your product differentiation should arise from your higher-level strategy for your product and your business.
https://www.aha.io/roadmapping/guide/product-strategy/what-is-product-differentiation
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