Useful Notes on Product Differentiation Strategy

The term unique selling proposition (USP) refers to advertising to communicate a product’s differentiation. 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. The differentiation of goods along key features and minor details is an important strategy for firms to defend their price from levelling down to the bottom part of the price spectrum. At market level, differentiation is the way through which the quality of goods is improved over time thanks to innovation.

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Bases/Sources for Differentiation:

Need for differentiation arises because different customers have different tastes and therefore, old product will not sustain. Consumers like to be unique by using novel things to stand apart. If you remember, Jawed Jaffery in Maggi Hot and Sweet tomato catchup says ‘it is different’. It will help in looking different from ‘me-too’ products.

Differentiation can be done in very many ways – Quality, Price, Channel Arrangement, Mass Customisation, or Innovation. Recently Nissan car has decided to introduce diesel models and hybrid models in India. Quality may be by way of either better performance, conformance, durability or style. Good examples of differentiation through performance quality include Tide detergent, Crest toothpaste, and Ivory toilet soap.

Difference through conformance means zero defect quality and standardisation – like Sundaram fastners. Another way to differentiate may be through durability – Volvo truck. Horizontal differentiation in quality can be created through different colour versions for the same good (Lux in green, pink, and purple colours), Styles (e.g. modern / antique), and tastes (Chocolate, lemon, pineapple). Vertical differentiation can be created through introducing better quality. In the market the goods can be ordered on the objective quality from the best to the lowest.

Through style and designer wear the difference can be created. Examples include Ritu Berry’s apparel, Rado or Rolex watches, and Mercedes Benz car. Second way of differentiation can be through unique channel arrangement. Dell and Amazon are good examples of going on-line. Differentiation through customisation as per the need of the customer can be next way and Dell Computer gives different options to choose from.

Some companies go for innovation to differentiate. Sony, Apple and 3M are good at innovation and thus able to distinguish themselves. At other times differentiation is created through sales promotion activities of sellers and, in particular, advertising. Availability in terms of timing and location can be used to create differentiation.

Differentiation can be created by using two variables, e.g., better quality at lower price or higher price. Most people believe 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.

More broadly, product differentiation can be “the indirect effect of different endowments in raw materials, know-how, style preference of different firms ignoring each others; the conscious choice, out of firm strategies, to position each product against competitors; the costly, uncertain, and difficult outcome of innovation efforts.”