Every business wants to stand out and make products and services more appealing to its target audiences. Product differentiation allows you to gain a competitive advantage over your competitors. There are several ways for differentiation which are not limited to premium quality, unique corporate culture, a well-defined niche, and excellent customer service.
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What is Product Differentiation?
Product differentiation is a competitive marketing strategy that allows businesses to distinguish their products and services from similar ones in the market.
Know your customers is the starting point to successful product differentiation. What do they want? What makes them satisfied and delighted. Conduct a competitor’s analysis and find out where they are falling behind. Differentiation allows you to create a competitive advantage and develop unique value propositions that make your products attractive to your customer.
For example, a hand-stitched shoemaker allows its customers to customize their shoes by carving their name or choosing the color of each component. Or a designer brand provides an online tool to its customers by choosing designs, colors and making the dress ready as they want.
Why Is Product Differentiation Important?
Over the years, competition has increased, which drastically affects every player in the market. Several industries have been facing a significant drop in barriers to entry in the past few years. As a result, the market has competitive, and product survival is not a mystery.
Differentiating your product and service is the only way for survival and competing in today’s market. Product differentiation is important due to the following reasons.
- A successful product differentiation strategy focuses on the unique attributes of your products and services
- It solves the mystery of “What customers want?”
- It helps you to align product benefits effectively and provide the value that your competitors are not in the market.
- It makes your business memorable i.e., it builds brand loyalty and brand equity
- When your product fulfills your customers’ needs and wants, they will more likely become repeated customers.
Types of Product Differentiation
Customer perception about the product is the critical deciding factor in the differentiation. There are three types of product differentiation.
Vertical Differentiation. It is when a customer chooses a product/service based on price or quality. For example, one customer prefers a restaurant due to its low calories meals. Another customer might select a restaurant because its price is low.
Horizontal Differentiation. It is when a customer chooses a product/service based on personal preferences, i.e., color, taste, shape, and packaging. For example, a customer selects a chocolate flavor ice cream instead of vanilla and strawberry flavor.
Mixed Differentiation. It is a mixture of both vertical and horizontal differentiation. For example, when you buy a car, the choice is based on numerous characteristics. You may consider color, mileage, and safety metrics while having a specific brand and budget in mind.
Advantages of Product Differentiation
- High Prices. It helps businesses to charge premium prices from customers.
- Value Creation. Differentiation gives customers added value so that they choose your products over others.
- Brand Loyalty. If you successfully implement a product differentiation strategy, your products will stand out and it will create brand loyalty.
- Competition. Providing a unique sales proposition to customers helps you compete in the market other than the price factor.
Disadvantages of Product Differentiation
- Increase in Revenue is Not Guaranteed. You can put all the effort into selecting the right differentiation strategy, but it does not guarantee that consumers will like your USPs and generate more revenue.
- More Resources. Implementing a successful differentiation strategy needs more time, effort, and resources. It can burden every relevant department and make your profit margins thin.
- Value can Decline. Over time your USPs can decline, and you can lose customer trust and they can choose another product that meets their requirements.
- Price Increase. When differentiating a product, it can increase your Research and Development, Manufacturing, and Marketing cost that your will ultimately charge for customers.
Determinants of Product Differentiation
We can differentiate a product based on the following determinants.
- Pricing. It is the most important area that differentiates your products in the market. The customer perception is that premium quality products are usually more expensive, and cheap products mean low quality. For example, Tom Ford fragrances are expensive ones and they are known as premium perfume products.
- Features. You can differentiate your product in the same price range based on different attributes like color, size, shape, ingredients, packaging, etc.
- Distribution Channels. It means a restaurant owner provides dining facility space, pickup, free home delivery service, catering, and entertain re-sellers.
- Performance and Quality. A customer will always prefer a superior quality product over a standard quality product.
- After-Sale Service. This key determinant allows you to cater to your customer after the purchases. It builds brand trust and makes a buyer a repeated customer.
- Location. The location of a manufacturing business or retailer helps companies differentiate its product from their competitors.
- Reliability. A reliable product means that it will perform as expected by the customer in a given period.
- Complexity. The level of simplicity or difficulty while using a product is a key factor of differentiation, especially in the technology industry.
Examples of Product Differentiation
If you want to understand the topic, you can go for real-life examples of product differentiation of retail stores, Netflix over Amazon Prime, iOS over Android and Facebook over YouTbue.
Apple
Apple is known for product innovation and it has successfully managed to distinguish its products from its competitors. It was made possible through;
- Elegant, sleek and minimalist design
- Apple differentiated its products with the unique operating system and user experience.
- Its premium pricing strategy where Apple products prices are significantly higher than its competitors.
Emirates Airline
Emirates Airline is a state-owned company of the UAE. The company manages to operate more than 3000 flights every week. The Number of flights does not differentiate, but what stands it out is;
- exceptional Customer Services and taking care of their passengers
- providing regionally inspired dishes and complimentary beverages
- the Airline using advanced navigation technology
Harley Davidson
Harley Davidson is founded in 1903. It was the only motorcycle company that survived the great depression period. Here is what differentiate it;
- The Harley unique sound
- It offers customization style to its customers that give hype to chopper-style motorcycles.
- Establishing community and brand culture around its motorcycle
- The company is also working on theme restaurants to attract loyal community members, e.g., Harley-Davidson Las Vegas Cafe.
How Do You Develop a Product Differentiation Strategy?
There are 3 ways you can develop a differentiation strategy for your product,
- Know Your Market. Conduct market research to find out who your competitors are and what they are offering to their customers? Find the gaps where competitors are not catering customer needs to the existing marketplace options.
- Brainstorm for Potential Ways. Involve your relevant team members and ask them for suggestions to differentiate your product and stand out in the market. You can start by discussing the benefits and values of your product to consumers and stick to those values and ensure that these values are important to you.
- Identify Opportunities. Once you have received available options from your team members, try to differentiate your offerings further from your competitors. At this stage, you can also evaluate where these opportunities belong to your business’s strategic road map.
How to Achieve Product differentiation?
Product differentiation enables a company to provide the best customer value at affordable prices that will make your customer loyal and improve your company’s profitability and viability. Here are a few suggestions you can achieve product differentiation.
- Size Differentiation. You can make your product more appealing than your competitors by offering unique sizes that best fit customer needs.
- Place of origin Differentiation. It is better to indicate the place of origin of your products to help customers make an informed decision. Besides differentiation, it can make your product more appealing, natural and authentic.
- Package Differentiation. Packaging can create a fascinating impression of your product on the customers. It can attract customers and possibly, things can go viral and create a buzz.
- Features Differentiation. Value addition is always a great source of product differentiation. You can add product customization options, like car interior dashboard color, heated seats, automated wipers and more.
- Customer Analysis Differentiation. It would be best if you took customer feedback, comments, reviews and complaints seriously. Learn more it and it will make your product more unique and acceptable in the market.
