What is Product Differentiation?

Malcolm Tatum

Product differentiation is the process of identifying the distinctions that exist between goods and services that are intended for consumption by the same segment of the consumer market. The idea behind this approach is usually to convince consumers that a particular product is able to fulfill all the functions associated with the competition, but to do so more efficiently and possibly at a lower cost. As part of the touting of the superior quality of the product, the advertising may also identify additional functions that the product can provide that are not offered by the competing products.

Cleaning products are often marketed to customers for a variety of uses instead of a single task.
Cleaning products are often marketed to customers for a variety of uses instead of a single task.

It is important to note that the process of product differentiation relies heavily on creating the desired perspective among consumers. While there may be no essential difference between the functions and quality of a given product over the products offered by the competition, the idea is to create a sense among consumers that there are compelling reasons to consider a given product more desirable than the rest. A number of different tactics can be used to create this perception, while still offering the customer some type of value added incentive.

One approach that is common in product differentiation is to use packaging that is perceived as being more user friendly. For example, a beverage company may package its products in containers that are designed to store comfortably on the shelves built into a standard refrigerator door. If the competing products are of a size and design that require they take up more space on the interior shelves of the refrigerator, consumers who wish to make the most of the available space within the appliance may find this a good reason to purchase what they perceive is a more space efficient product. This is particularly true if the consumer perceives that this space efficient product is of equal quality to the competition, and costs no more money.

At times, the process of product differentiation involves marketing a product in a manner that convinces consumers that it can be used in more situations than competing products. For example, a glass cleaner that is marketed as not only cleaning window glass but also disinfecting metal surfaces and kitchen countertops is likely to attract the attention of consumers who would rather purchase one product rather than buy three different products to manage different household cleaning tasks. While other products on the market may be capable of fulfilling the same round of functions, only the product that actively advertises these functions will stand out from the rest.

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True product differentiation does not involve the use of false advertising to attract and maintain customers. In order to retain that consumer base, the product must successfully live up to the advertising, and provide every value added incentive that is touted. Should the product not deliver on those claims, consumers will quickly turn their attention to other products that can fulfill their needs.

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Discussion Comments


BrickBack- I think that other companies might publish studies of how their product was preferred in a market research study, or they may offer a liberal product warranty in order to entice a customer to perceive the product as being a high quality product and less risky to purchase.

For example, if you are buying a mattress that offers a five year warranty or a twenty year warranty, you would probably find that the mattress offering a twenty year warranty was better even though it costs a lot more.

Companies that offer easy refunds for their products or services also rank high among consumers and are often a great way for a company to differentiate itself from the competition especially if they sell identical products.

These are product differentiation competitive advantages.


SauteePan- That is true, but companies also engage in horizontal product differentiation in order to justify their product in the marketplace.

This happens when competing companies all offer the same product or service and they try to differentiate themselves from the competition.

Many service oriented companies will up their service levels and provide higher levels of customer service providing a lot of customer contact. These firms may send a customer an offer of a free gift or service on their birthday, or provide a thank you card after the purchase was made.


Suntan12 -I agree and I feel that vertical differentiation is at play here. I think that when the price of an item is high as with most of the Apple products there is a perception that the product is a quality product that will last a long time.

Conversely if the product is priced really low our expectations are that the product might work for a limited time but will not last long due to its inferior quality.

For example, a Chanel Santos watch should last a lot longer than a Swatch watch. Because of the high price of the Chanel watch we expect high quality which is the reason why people will pay this price for a Chanel watch, but not pay that price for a Swatch watch.

Here the differentiation strategy is well defined.


Conducting a product SWOT analysis is important way of analyzing the strength, weaknesses, opportunities, and threats that a given product faces.

This allows the company the ability to properly position its product in the marketplace. An example of product differentiation is with the series of Apple products such as the I Phone, Mac Air laptop, and the I Pad.

All of these products are unique to what Apple’s competitors are selling which is why there is so much buzz around these products.

Consumers have gotten used to Apple’s innovative products that when Apple launches a new product there are usually lines of people waiting outside in order to get their chance to buy the product.

Some stores have even resorted to waiting lists because the demand is so high. Apple offers amazing examples of product differentiation because their products are so technologically advanced that people do not mind paying the high price tag because they know that they will receive a quality product.

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