Product Differentiation: Definition, Types & Examples

KEY TAKEAWAYS

• The main elements of product differentiation include marketing, packaging, pricing, and design.
• You can gain a competitive advantage in the market with effective product differentiation.
• An effective differentiation strategy should highlight the main features. And how the product offers benefits the competition doesn’t.

What Is Product Differentiation?

In its simplest form, product differentiation is how you’re going to install a strategy. This is to separate your product from the competition. It involves highlighting different features and benefits that make the product stand out. This is important to do so that potential customers will be more likely to choose your product.

When you put a marketing strategy in place, you can install certain methods. This allows your product to grab the right attention. By doing this effectively, you’re able to build your brand awareness. With more awareness, customers have a higher chance to recognize your business. Plus, it’s going to increase the opportunities for customers to choose your product. This is versus an undifferentiated product.

There are certain qualities that a business can hold. This is to maximize its differentiation efforts. This can include things like:

• Having a strong team dedicated to research and development
• Implement an innovative mindset
• Obtain the right resources to create a product or service that’s high-quality
• Effective marketing and sales strategies
• In-depth communication plans to highlight the benefits and competitive advantage your product offers

The specific type of differentiation strategy you install will depend on the industry. As well as things like how competitive the market is. And the type of product you’re selling will also get taken into account.

How Does Product Differentiation Work?

When it’s all broken down, product differentiation is essentially a marketing strategy. It’s designed to encourage your customers to choose your product. This is when faced with a decision between you and your competitor. And in a crowded, ultra-competitive market, this is extremely important for brand success.

It identifies the main qualities your product has. As well as the qualities that set it apart from similar products. So, when a customer is faced with similar products, you can highlight the main differences. This will help to drive consumer choice.

Different Types of Product Differentiation

There are different types of differentiation to focus on. This is depending on the type of product you offer and the industry you’re in. Some of the most common types include:

• Overall quality
• Primary features
• Total reliability
• Price
• Location of the product
• Your brand image and reputation
• Specific types of marketing and promotion tactics
• The distribution channels you use
• How efficient your post-sale support is, including customer service
• Ability for customization
• Other features and overall functionality

There are several different ways to differentiate your product. Although there are three primary categories. These include:

• Vertical differentiation
• Horizontal differentiation
• Mixed differentiation.

Let’s take a closer look into each of these categories of product differentiation. And see how they work with objective measurement.

Vertical Differentiation

When you have a vertically differentiated product, it’s going to be heavily focused on the price. The price points and the main points of quality are going to be different. This is for vertically differentiated products. Within this category, there’s a general understanding. This is because if every option were the same price, one would be a clear winner.

One of the most common examples of vertical differentiation is a branded product. This is versus a generic product. Especially when it comes to the personal taste of target markets.

Horizontal Differentiation

Horizontally differentiated products don’t focus on the overall quality or price point. Rather, these types of products will typically have identical or similar starting prices.

There is one main thing to take into consideration with horizontally differentiated products. And that is the customer’s personal preference. For example, think of how customer preference comes into play with Pepsi vs. Coca-Cola. Or, when it comes to specific bottled water brands or different types of dish soap. It’s all about customer preference.

Mixed Differentiation

Mixed differentiation is also commonly referred to as simple differentiation. In this case, it takes a combination of different factors into account. And, it‘s common for mixed differentiation to get combined with horizontal differentiation.

A prime example of this differentiation is when consumers compare vehicles that are in the same class. They also get compared based on similar price points. Even if they’re from two different manufacturers.

Advantages and Disadvantages of Product Differentiation

It’s worth understanding the advantages and disadvantages that come with product differentiation. Knowing the strengths and opportunities will allow you to make more informed decisions. Doing this will also let you see how some of these decisions impact your business.

Advantages of Product Differentiation

• It creates value
• Helps develop brand loyalty
• Lets you compete in a different way

Disadvantages of Product Differentiation

• Increasing revenue isn’t guaranteed
• The perceived value of your product could decline
• You could strain and max out your current resources

There’s no perfect recipe for this as the type of product you offer and your industry will come into play.

Product Differentiation Examples

Let’s say you have a new product and want to highlight the cost advantages. But then a competitor comes along and makes a virtually identical product. You might then decide to price yours at a lower price point. As well, you might also highlight that it comes with a reusable filter. This is another feature that can sway consumers since it can come with cost savings.

A good mainstream example of product differentiation is Nike. They use effective branding techniques to stand out. This is from the likes of Adidas, Under Armour, and Reebok International. These companies partner with high-profile athletes to promote the brand.

Nike differentiates itself from its competitors extremely effectively. This is by placing a large focus on creating new and innovative product lines. These new lines are put in place to generate excitement. By maximizing these efforts, they’re able to generate further interest. This is from both new customers and existing customers.

Summary

Product differentiation is a strategy used to create separation. This is the separation between your product and the competition. The goal is to pique consumer interest and grab the attention of consumers. Ultimately, it’s designed to encourage customers to choose your product over one that might be similar.

It’s beneficial to have a strong and dedicated team that focuses on research and development. This helps you develop effective marketing and sales strategies that focus on maximizing results. However, it’s important to understand that your strategy will often depend on the type of competitive products you offer. It will also often depend on which industry you operate in.

Some of the most common differentiators include quality, features, reliability, and price. They can also include how consumers perceive your brand image. As well as the marketing and promotion tactics used, and functionality.