Product Differentiation

product differentiationProduct differentiation is the path chosen by most brand leaders in any industry.

Cellulose tape became known as ‘Sellotape,’ and the vacuum cleaners are referred to as ‘Hoovers’ is a great credit to the originators. They become natural first choice brands against which all competitors are judged.

Maturing markets mean increased competition for market share and marketing research and experimentation to find strategic ways to segment existing large volume markets and differentiate products.

To operate effectively, then, the marketing executive will commonly use a strategy of product differentiation. Product differentiation provides one basis on which a marketer can appeal to selective buying motives.

A general class of product is differentiated if any significant basis exists for distinguishing one seller’s goods or services from those of another. Thus products are differentiated if the consumer believes that they are different. It is complicated for marketers to differentiate standardized products.

There are examples of firms that have successfully differentiated the standardized products they are selling. Again, some products can easily be differentiated. Automobiles and furniture are two products that have successfully been differentiated by their manufacturers.

If a product is a distinct item, such as an automobile, significant changes can be made in its design or performance. If a product is of a generic type, such as gasoline or sugar, consumers are less likely to perceive differences among various manufacturers’ offerings.

Thus, each manufacturer would be advised to engage in a strategy of product differentiation.

A manufacturer can basically differentiate based on the features, performance, conformance, durability, reliability, reparability, style, and design of his product.

Basis of Product Differentiation

Product differentiate based on;

  1. features,
  2. performance,
  3. conformance,
  4. durability,
  5. reliability,
  6. reparability,
  7. style, and
  8. design.

Let us now have a look at each of them:


A product serves a basic function. The basic function can be supplemented by adding some characteristics to the product.

The characteristics that supplement the basic function of the product can be termed as features. Marketers nowadays offer their products with varying features by adding characteristics to attract customers of new segments.

In addition to the basic product, a company can create additional versions by adding new characteristics to attract new groups. A wristwatch manufacturer can offer additional features such as an alarm, calculator, memory book, etc.

Thus the company hopes to attract new customer segments. A company can skim the cream by establishing itself as a pioneer in adding new features to its products. But such a move must be a tactical one to succeed. Identifying and selecting new features to add is a difficult job, though not impossible.

There are several ways of identifying and selecting new features, such as interviewing recent customers.

Such an interview may include questions on consumers’ preferences for the particular product brand, strengths of the product, problems customers face with the product, suggestions on product improvement, price perception, reactions to other customers’ suggestions, etc.

Thus a company can have ideas of features that may be added to differentiate his product from competitors. The company now has to decide on which features it can and should add with the existing ones.

The decision may be arrived at by equating the cost involvement with customers’ perceived value. Each of the new features should thus be equated to decide finally which one (s) to be added. Consider the following example to understand the equation.

Say, for example, a wristwatch manufacturer is considering three possible improvements. They are shown in the table.

Meaning Customers Effectiveness Value
ProductFeaturesCompany cost per unit (a)Customers perceived value (b)Customer effectiveness value (c = b/a)
Memory book1252502

The alarm would cost the company $50 per watch. It was found from the interview/survey of customers that customers value an alarm facility at $150.

The manufacturer could therefore generate $3 of incremental customer satisfaction for every $1 increase in the cost of it.

The calculator would cost the company $75 per watch, and customers, for example, the value of $300. On the other hand, a memory book costs $125 per watch to add, and customers value that $250.

Looking at these three equations, it can be concluded that by adding calculating facilities, the company can gain the most, i.e., customers can be satisfied more by offering additional features like a calculator.

After the above equations are found, the next logical step is to estimate the size of the market that is to be attracted by the new additional feature, calculating the time to be required to add the feature and anticipating competitors’ reactions. The final decision should be taken based on the above analysis.


A product may perform at a low, average, high, or superior level. At a time, it usually performs at any one of the above levels. The product’s performance relates to the level at which it performs.

It is found from different studies that higher quality products generate higher revenue and a higher return on investment. A producer of higher quality products can also charge a high or premium price from the customers yet attract more customers.

Particularly in high ticket items, price is perceived to be an indicator of quality. Monroe, surveying the literature of price perception, reports that many studies substantiate a perception of the price-quality relationship.

There is also price snobbery. For example, one cosmetic product showed a poor market performance at a low price but, when reintroduced at a higher price, did well.

The inverse price-demand relationship (the less it costs, the more people will buy it) is a cornerstone of classical economics. Still, there also appears to be much evidence of the high price-desirability relationship for some products.

You already know that in the case of a high-quality product, a manufacturer can charge a premium price and earn more profit.

This is possible by creating a set of loyal customers who purchase repeatedly and convince others to buy. The cost of production and delivery of high-quality items is not proportionately high than the cost of low-quality items. As a result, high-quality items yield more profit.

Despite the positive relationship between quality and profit, a marketer shouldn’t design a high-performance quality level for all time.

If the market gets sour, the manufacturer’s return will diminish. Therefore, it is logical for a firm to design performance levels based on the target market’s requirements and the competitors’ performance levels.

There are three strategies available to a firm to manage performance quality with the elapse of time. The manufacturer can regularly improve performance quality and can expect to capture additional market share and higher profit.

The other option is to maintain quality at a particular level at all times. The last option is to reduce quality as time passes to cope with the rising cost of production or increase the profit figure.


Based on buyers’ expectations, manufacturers may produce identical nature items that conform to the producer’s specifications. Conformance quality is the degree to which all the produced units are identical and meet the promised target specifications.

For example, a television manufacturer claims that a particular model of television sets show picture clearly within 5 seconds of switching on.

If every television set does so, it is said to have high conformance quality and greatly satisfy customers. If otherwise happens, i.e., if some of the said model sets do not show pictures within 5 seconds, customers are likely to be frustrated and will develop a negative attitude toward the company.


By durability, we mean the expected life of a product. It is considered very important in most product types as well as to most customers. They expect that the product should last long if used under normal and unusual conditions.

If a product is perceived to be durable customers, do not mind paying a premium price. If a product is priced disproportionately high or perceived as obsolete by the buyers, they will not be willing to pay a premium price.

Thus, while charging a higher price for a long-lived product, a marketer should keep in mind the nature of the product, i.e., whether there is a rapid technological change or not.


Reliability relates to the functional performance of the product. If buyers perceive that the product will perform well without trouble, they will be ready to pay a higher price.

Positive perception of buyers about the reliability of the product thus gives the seller a competitive edge.


If a product can easily be repaired in improper performance or function, it is perceived positively by customers.

In such a case, buyers will be ready to pay a higher price, considering the convenience of fixing the product. A particular brand of television, for example, is considered to be highly repairable if it is made of parts that are widely available and of standard quality and can be replaced easily.


Style is a reflection of social and cultural forces. A style is a distinctive manner of construction or presentation in any art, product, or endeavor.

Thus we have styles in automobiles (sedans, station wagons), in bathing suits (one-piece, bikini), in furniture, and in dancing (waltz, “break”).

If a product is styled outstandingly, the seller finds no difficulty selling the product at a high price since there are groups of customers who always look for styles. The style could be used very effectively as a differentiation variable.

While deciding to exploit style as a differentiation tool, marketers should keep in mind that it should not be compromised with convenience. If it is so, the result could be otherwise.

One of the styling weapons used widely in contemporary marketing practice is the packaging. Attractive packages easily draw buyers’ attention, and many buyers in many different kinds of products make buying decisions based on packaging.


Good design can also form the basis of product differentiation. This is perhaps more readily appreciated in physical products. The success of companies such as Gucci clothing and accessories, Braun consumer durables, or Olivetti office equipment spring readily to mind as examples of companies where design is closely associated with both distinctiveness and quality.

Design refers to the arrangements of items that collectively form a product.

Good design provides three important aids to the consumer: it represents the ‘perceived value’ of the product, it enables the company to create a ‘personality’ for its products, and by judicious periodical alterations in designing, it creates demand through ‘replacement’ with more fashionable new designs.

It now appears that good designs improve the marketability of a product and ensure more profit to the firms.

But, as a matter of fact, many companies are yet to invest in improving their products’ designs. It is also a common picture in many companies to consider style and design synonymously, and designers also receive little attention.

On the other side, some companies and countries are leading the world in the field of design. Before deciding to invest in design activities, management should be convinced of its desirability.

It should take into account the corresponding return. If the return figure seems frustrating, the company should give a second thought.

Braun, one of the German companies producing various small appliances, is regarded as a leader in fashion in its field. Braun has suggested 10 principles of good design that may help a company succeed in design activities.

The principles are mentioned below:

Principle-1Good design is innovative.
Principle-2Good design enhances the usefulness of a product.
Principle-3Good design is aesthetic.
Principle-4Good design displays the logical structure of a product. Its form follows its function.
Principle-5Good design is unobtrusive.
Principle-6Good design is honest.
Principle-7Good design is enduring.
Principle-8Good design is consistent right down to details.
Principle-9Good design is ecologically conscious.
Principle-10Good design is minimal design.


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