What Is Product Differentiation?

Product differentiation is a marketing process that strives to identify and communicate the unique benefits or qualities of a product compared to its competitors.

Successful product differentiation creates a competitive advantage for the product's seller.

[Important: Product differentiation raises consumer interest. More importantly, it can increase brand loyalty and even survive a higher price point.]

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Product Differentiation

How Product Differentiation Works

Product differentiation is intended to prod the consumer into choosing one brand over another in a crowded field of competitors. It identifies the qualities that set one product apart from other similar products, and uses that difference to drive consumer choice.

The references to these qualities is reflected in the product's packaging and promotion, and often even in its name. The brand name Fancy Feast is intended to convey that this is a high-quality cat food that your pet will love, and the advertising reinforces that claim. The FreshPet brand highlights its use of natural ingredients. Hill's Science Diet conveys the message that this cat food was developed by real experts.

The process of product differentiation may require adding new functional features or may be as simple as redesigning packaging. Sometimes differentiation does not require any changes to the product but involves creating a new advertising campaign or other promotions.

Product differentiation is often subjective, as it aimed at altering customers' evaluation of the benefits of one item compared to another. "Gets out the toughest stains" implies that a certain detergent brand is more effective than others. The actual difference in the product may be minuscule or nonexistent.

Ideally, differentiation demonstrates that the product can do everything the competing choices can but has an additional benefit or features, higher quality, or a lower cost.

Examples of Product Differentiation

Companies introducing a new product often cite its lower costs to buy or use. If Company X produces a coffee maker virtually identical to that of Company Y, Company X may offer a version at a lower cost. If it comes with a reusable filter, the savings on paper filters are highlighted in packaging and advertising it.

In fact, product differentiation is vividly on display among the many coffee maker brands on today's market. KitchenAid coffee makers have a hefty, substantial feel, and a premium price to match. Keurig differentiates itself with the ease of use of coffee pods. Amazon Basics, as always, sets an unbeatably low price point.

When functional aspects of two products are identical, non-functional features can be highlighted. This can be a simple as an appealing change in design or styling.

At times, the most effective way to make one product stand out from another is with advertising. One brand can be distinguished from another even if no discernible differences actually exist.

Advantages of Product Differentiation

Product differentiation raises consumer interest. More importantly, it can increase brand loyalty and even survive a higher price point.

If a product is perceived to be better than its competitors, consumers will consider it worth the higher price.

Key Takeaways:

  • Product differentiation focuses the consumers' attention on one or more key benefits of a brand that make it better than other choices.
  • Differentiation may be reflected in the name, packaging, and promotion of a product.