Development or incorporation of attributes (such as benefits, price, quality, styling, service, etc.) that a product’s intended customers perceive to be different and desirable. Advertising and promotion of a product is based on its differentiating characteristics. Source: http://www.businessdictionary.com/definition/product-differentiation.html
Today, the market is crowded with similar brands, clamoring for the attention of customers. In order for their brands to stand out, companies strive hard to make them appear different from competing brands. This is product differentiation.
Product differentiation is an objective that a business may try to achieve through its marketing. Any business, must try to differentiate products from those of competitors, so as to gain a ‘competitive edge’ over them, thereby attracting more customers. This difference can be achieved by altering the product- making it better than that of the competitor’s or it can be ‘perceived’- such as a strong brand identity developed in the promotional campaign.
Need for product differentiation: usually customers cannot tell the difference between competing products- hence the need to differentiate developing a competitive advantage
Focus and differentiation
A product may have a lot of attributes, but it is essential to focus on only few of the attributes. Eg: Volvo-safety, BMW-performance : but it doesn’t mean that Volvo does not perform or BMW is not safe. They have just focused on those aspects of their products. Therefore their products will be differentiated on that particular attribute. If a product claims to be good at everything, you run the risk of consumers not believing what you say, even though you may have all those attributes. If a product is focused: 1) more credible 2) customers will think that they are as strong in other areas.
What to differentiate:
Easiest way to differentiate is on price, but it is least effective as competitors can always copy it easily.Example: Indian computer market included companies such as HCL and IBM. Then came Siva from sterling computers which sold it’s computers at a cheaper price. Therefore others followed suit, and then Siva had to further differentiate it’s product in order to attract customers as competing products were similarly priced. Hence, it is better to differentiate on other attributes such as- features, performance, reliability, reparability, design, style, performance and so on.
1) Blackberry- Differentiated by addition of BBM in their smart phones. Although other smart phones with IM platforms existed, Blackberry was the one of the first to offer this service to customers as a standard on it’s devices. Their competition did not have any such service at the time. This attracted customers. 2) Promise- People thought promise was different from other toothpastes as it had clove oil however even some other toothpastes had clove oil, but only Promise focused on this attribute and hence it was perceived as a differentiating characteristic. 3) Hero Honda motorcycles- differentiated in terms of fuel efficiency- “fill it shut it, forget it”
Branding and Product differentiation
Branding is one way of differentiating products and services. Industries like the garments and tobacco industries, for example, use branding very effectively as the products within these segments are often very similar and have little to distinguish themselves from each other. Branding helps to retain customer loyalty. Example: Smokers, are very particular about their brand and believe that no other brand can satisfy them. In an experiment, 300 smokers who were loyal to 3 major brands were given an unidentifiable sample of each brand to smoke and were asked to identify their own brand.
The result: only 35% were able to identify the brands; and under the law of averages, pure guesses accounted for a third of correct identifications. The reason for this was that brands of cigarettes within the same category (menthol for example) differ very marginally in terms of strength, flavour and taste, and it is difficult for a smoker to truly distinguish between them. The reason why a smoker is loyal to a particular brand is the advertisment. Eg: Charminar: “it takes charminar to satisfy a man like you” – reinforces that only Charminar can satisfy the man who smokes them!
Product differentiation vs USP
USP is not the same as Product differentiation.
USP refers to advertising to communicate a product’s differentiation while Product differentiation is the process of describing the differences between products or services.
Types of differentiation:
Horizontal Differentiation: is by the customer’s preference/taste of certain characteristics of the product. (Same qualities/price, different style/taste/colour) Perceived value remains the same. (eg: different colours of lipsticks) Vertical: Products differ in some characteristic which all consumers agree is best. Based on quality. Prices differ as perceived value differs (eg: Different brands of lipstick: Mac, Lakme, Lipice) Horizontal differentiation is about consumers’ wants and preferences, while vertical differentiation focuses on the consumers’ willingness to pay for the quality.
DO NOT offer wildly exaggerated differentiation that the market does not want. (eg: High priced men’s toilet soap “Aramusk” was unsuccessful due to price)
DO NOT negate useful and expansive differentiation by under attending to other parts of the product- service package. The difference should be OVER AND ABOVE the MINIMUM expectations. Example: Fancy hotels with poor service
The product is not differentiated until the CUSTOMER understands the difference . The consumer perception is what matters.