What Is Product Differentiation?

Product differentiation is a marketing strategy that strives to distinguish a company's products or services from the competition. Successful product differentiation involves identifying and communicating the unique qualities of a company's offerings while highlighting the distinct differences between those offerings and others on the market. Product differentiation goes hand-in-hand with developing a strong value proposition to make a product or service attractive to a target market or audience.

If successful, product differentiation can create a competitive advantage for the product's seller and ultimately build brand awareness. Examples of differentiated products might include the fastest high-speed internet service or the most gas-efficient electric vehicle on the market today.

Key Takeaways

  • Product differentiation focuses on 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.
  • A product differentiation strategy should demonstrate that a product can do everything the competing choices can but has additional benefits no one else offers.
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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 those differences to drive consumer choice. Differentiation marketing can also involve focusing on a niche market. For example, a small company might find it challenging to compete with a much larger competitor in the same industry. As a result, the smaller company might highlight exceptional service or a money-back guarantee.

Promoting Product Differentiation

The references to these qualities are 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.

A product differentiation strategy may require adding new functional features or might be as simple as redesigning packaging. Sometimes differentiation marketing doesn't require any changes to the product but involves creating a new advertising campaign or other promotions.

Measuring Product Differentiation

As stated earlier, the differences between the products can be physical in nature or measurable, such as the lowest-price gym in a region. However, the differences between the products could be more abstract such as a car company that advertises that their cars are the coolest on the market. Retailers and designers often spend a significant amount of advertising dollars showing their clothes on young, hip models to convey the underlying message that if you don't wear their label or brand, you're not with it. In actuality, no company can measure and quantify the level of coolness or style their product offers.

As a result, product differentiation is often subjective since it's 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 and that of the competition might be minuscule or nonexistent.

Types of Product Differentiation

Ideally, a product differentiation strategy should demonstrate that the product can do everything the competing choices can but has an additional benefit that no one else offers. Below are a few of the most common strategies employed to differentiate a product or service.

Price

Price can work both ways, meaning companies can charge the lowest price to attract buyers that are cost-conscious–Costco, for example. However, companies can also charge higher prices to emphasize that it's a luxury product and worth it–such as a luxury car.

Performance and Reliability

Products that are considered reliable and offer long-term value are often touted as better than the competition. Also, increased performance is often used as a differentiating factor for products such as batteries.

Location and Service

For smaller, local companies that are trying to stand out from national brands, it's common to emphasize that they're a local business. Also, the added level of service that results from being in "your neighborhood" is a way for companies to showcase their high-quality service or product but also justify a higher price versus national brands.

Benefits of Product Differentiation

A differentiated product 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.

Differentiation marketing can help companies stand out when a product isn't perceived to be much different from a competitor's, such as bottled water. The strategy might be to focus on a lower price point or that it's a locally-owned business. When functional aspects of the two products are identical, non-functional features can be highlighted. The strategy can be merely an appealing change in design or styling.

A successful product differentiation campaign raises consumer interest and gives them a reason to believe they need their product versus another.

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.

For example, 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.