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.
Product differentiation can be achieved through:
- Distinctive design– e.g. Dyson; Apple iPod
- Branding – e.g. Nike, Reebok
- Performance – e.g. Mercedes, BMW
A key term to remember is USP, which is the acronym for Unique Selling Point.
A Unique Selling Point is a feature or benefit that separates a product from its competitors.
A USP could be a lower price, a smaller version of the product, offering extra functions, or even simply producing a standard product in a range of colours or designs.
A business needs to look at its unique selling points compared to competitors. If it doesn’t have any, the business will probably struggle to make the product seem attractive to customers (the remaining option is usually to compete solely on price).
If a business finds that its customers are switching to competitors or buying purely on price, it should be asked whether the business has identified the USPs for its products and services. If it has, then the question is whether it is communicating USPs clearly to customers?
The Advantages of a Product Differentiation Strategy
Product differentiation is a marketing strategy that businesses use to distinguish a product from similar offerings on the market. For small businesses, a product differentiation strategy may provide a competitive advantage in a market dominated by larger companies. The differentiation strategy the business uses must target a segment of the market and deliver the message that the product is positively different from all other similar products available.
When a company uses a differentiation strategy that focuses on the cost value of the product versus other similar products on the market, it creates a perceived value among consumers and potential customers. A strategy that focuses on value highlights the cost savings or durability of a product in comparison to other products.
The product differentiation strategy also allows business to compete in areas other than price. For example, a candy business may differentiate its candy from other brands in terms of taste and quality. A car manufacturer may differentiate its line of cars as an image enhancer or status symbol while other companies focus on cost savings. Small businesses can focus the differentiation strategy on the quality and design of their products and gain a competitive advantage in the market without decreasing their price.
A successful product differentiation strategy creates brand loyalty among customers. The same strategy that gains market share through perceived quality or cost savings may create loyalty from consumers. The company must continue to deliver quality or value to consumers to maintain customer loyalty. In a competitive market, when a product doesn’t maintain quality, customers may turn to a competitor.
No Perceived Substitute
A product differentiation strategy that focuses on the quality and design of the product may create the perception that there’s no substitute available on the market. Although competitors may have a similar product, the differentiation strategy focuses on the quality or design differences that other products don’t have. The business gains an advantage in the market, as customers view the product as unique.