Product Differentiation – Definition, Types, Importance & Examples
Karin Weller
Posted On July 13, 2020
What is Product Differentiation?
A technique or process used by businesses to differentiate a product or service from other similar ones available in the market is known as Product differentiation. This process helps businesses develop a competitive advantage and define compelling unique selling propositions (USPs) that make their products different from competitors.
Examples of Product Differentiation
| S.No. | TYPE | EXAMPLE |
|---|---|---|
| 1 | Horizontal Differentiation | Pepsi vs Coca Cola, bottled water brands, types of Face wash. |
| 2 | Vertical Differentiation | Branded products vs. generics |
| 3 | Mixed Differentiation | Vehicles with same price points from two different manufacturers. |
Importance of Product Differentiation
The ultimate goal of product differentiation is to build competitive advantage or to make your product stand out in the market. Differentiating your product is important in any industry, especially if you’re in a crowded market with lots of competitors. The goal is to make your potential customers believe that you can offer what other businesses can’t.
Product Differentiation Types
Product Differentiation depends on how the brand sees its product, and how the customer recognizes the product. There are 3 types of product differentiation:
- Horizontal differentiation – Difference in products that cannot be estimated in terms of quality.
- Vertical differentiation – Difference in products that can be accessed in terms of quality. It’s a case where it is possible to say that one product is better than the other.
- Simple/Mixed differentiation – Differentiation based on various characteristics.
Factors influencing Product Differentiation
- Performance & Quality – Customers always prefer a good quality product that guarantees durability and reliability.
- Features – Product features like size, ingredients, origin, etc. distinguish products in the same price spectrum, and help the brand to back their high pricing decisions.
- Reliability – Customers like to invest their money in reliable products because there is a less probability of them malfunctioning or failing within the given warranty.
- Looks – Looks and designs play a very important role in distinguishing the product, especially when the business is about apparels and other luxury products.
- Channels of Distribution – Channels of distribution differentiate a product from its competitors.
- Price -The price of a product plays an important in product differentiation. It is the most common determinant of which target customer group will be attracted to a brand’s product. It distinguishes a premium product from economical products.
- Location – Brand’s home country, manufacturer’s location, and retailers’ location play an important role in distinguishing a product from its competitors.
- Marketing efforts – Marketing efforts help boost the brand image which is a decent product differentiator. Various marketing efforts and strategies like sales promotion act as an add-on to the differentiation strategy.
- Complexity – The ease or difficulty level of complexity of usage of a product plays a very important factor in product differentiation, especially in the technology industry.
- After-sale services – Good and friendly after-sale services make the customers have faith in your business and make them differentiate it from others.
Summing up
Do complete market research and work with your team to build an effective marketing strategy. We know that building a distinct product or service and making it stand out in the market takes a lot of hard work. And with the help of product differentiation, you can easily grow your business.
