Product differentiation is essential in today's financial climate. It allows the seller to contrast its own product with competing products in the market and emphasize the unique aspects that make its product superior. When utilized successfully, sellers gain a competitive advantage by demonstrating why their products are unique.

Key Takeaways

  • A company has two ways to compete: either on cost or through product differentiation.
  • A good product differentiation strategy focuses on a buyer's perception of value to increase brand loyalty.
  • Product differentiation can also contribute to the buyer's perception that no substitute is available. Consumers will believe competing products do not meet their needs.

Standing Out

A company can set itself apart from the competition in two ways: through cost leadership or through product differentiation. Cost leadership emphasizes saving money and appeals to those who are on a budget. Product differentiation focuses on providing quality.

With so many new products hitting the market, it is important for companies to stand out in terms of quality. Consumers want to know that what they are purchasing will last and be useful.

Product Differentiation Strategy

A good product differentiation strategy may gain brand loyalty, which is paramount to any successful business. This strategy focuses on a buyer's perception of value. As long as the seller continues to provide high quality, the customer base will remain strong.

Today's financial climate contains businesses in an intensely competitive market. If a product does not have consistently high quality, consumers will turn to competitors. Creating a product that is unique will not be enough to gain the competitive advantage of product differentiation if the buyer does not value what the seller is differentiating on.

The seller must have a thorough understanding of the buyer's expectations and how the product will be used. For example, a car's purpose is for transportation, but if it also provides a feeling of accomplishment and self-worth, then the seller will have a competitive advantage over cars that are more basic.

Accept No Substitutes

Another way product differentiation is so important is it contributes to the buyer's perception of no substitute being available. Product differentiation will highlight the areas that set it apart, and consumers will perceive that other similar products do not meet their needs. It raises their expectations about the quality standards they are willing to accept.