What is Product Differentiation? How does it help brands create extraordinary value? What are some examples of differentiation?
Product differentiation is the process of differentiating a product from its competing offerings. However, differentiation is not as simple as that. It is meant to achieve some unique advantage and a deeper purpose which is not just to catch attention. Brands generally differentiate their products from that of the other brands in order to bring the focus of their target market to their product and its specific attributes. It helps identify what critical gaps the product fills. There are two shampoos. One is meant for shiny hair and the other is for dandruff. Despite being from the same category, the two products have been differentiated based on their use. Therein lies their unique value. Differentiation can help achieve unique value and acquire a competitive advantage which helps generate higher sales and profits.
The market is full of brands that have generated differentiated value using differentiation. Products can be differentiated based on their distinguishing attributes including price and quality. There are other methods of differentiating a brand or product from the others too. However, the most important thing about differentiation is that it can help find quick growth and penetrate the market in quicker time. Apple and Microsoft compete in the same market. They provide similar products but their offerings are sharply differentiated from each other. It is how the two firms have created unique value. If the value is not unique, then your products will not catch attention of prospective buyers easily.
Most of the brands that are leading in their markets, are at the top because they have been able to differentiate their products and create unique value. Differentiation is everywhere. Both Loreal and Unilever make beauty products and both have acquired great popularity and brand loyalty. If the two brands did not use a differentiated strategy, the first difficulty would have been in the creation of brand loyalty. In terms of prices, product types, product quality and the benefits of the product, these two brands have used unique strategies. The prices of their products differ, the types of products they have introduced to the market are also different. Product quality and types can be important bases of differentiation. Walmart has used a differentiated pricing strategy. It sells at the lowest prices in the market. Costco is also operating in the same market. It also sells products at low prices in bulk but has differentiated its strategy by marketing its brand differently. It provides memberships and other unique advantages that Walmart does not. It has created a unique value and has acquired a unique brand image in the eyes of its target market.
- Differentiation for competitive advantage
In this way, differentiation can be used not just to attract customers but to create a long lasting advantage. Differentiation can also be a source of competitive advantage as it is for Microsoft and Apple. Apple is known for its matchless quality, unique designs, great technology and for its premium pricing. Microsoft on the other hand is catering to a broader market. It is known for its affordable and simple products and services. Some of the products of the two mega-brands are similar while many are not. Both produce laptops and software. However, Microsoft is mainly focused on the computer market, while Apple has brought Itunes and Ipod and Ipad to cater to its audience’s entertainment needs.
Still, price is an important basis of differentiation for Microsoft which serves a broader target market made up of students, professionals, ordinary users and organizations. Microsoft has focused on price, utility and accessibility. Its products are aimed at both businesses and individuals. They are meant to provide higher utility for professional use and to be accessible to all. So, an important factor about the Microsoft customers is that they are price sensitive. So, the main difference between the brand strategies of Microsoft and Apple is in the price sensitivity of their respective target markets. Apple’s target market is less price sensitive while Microsoft users are more. The products by Apple are premium priced and better in terms of quality. It is for its premium pricing strategy that its target market is made of high end buyers mainly.
In this way, firms can use differentiation to create a unique brand image and generate better sales and revenue. For the firms, differentiation can be a source of sustainable competitive advantage. Apple has mainly positioned its products as high performance gadgets that look equally great. Microsoft has positioned its products that are meant to maximize the potential of people using them. Many firms have used other methods too to differentiate their brands from the others. Amazon has used a unique basis of differentiation. It has always focused on better customer service than its competitors. Customer orientation can also generate differentiated value for the brands. In this way differentiation can be great for branding too. Walmart, Costco, Apple, Microsoft, Amazon; these all have acquired a distinct in the eyes of their customers based on differentiation. In all the markets, the brands that have acquired a leadership position have done so by creating some unique value and a unique image. Two toothpastes despite being from the same product category might be serving sharply differentiated needs. One is for plaque, while the other is for those troubled by aching gums.
Two brands cannot deliver the same value at the same price. If someone is already selling a product in the market. You cannot expect to achieve a significant market share by bringing a copy of the product. You must differentiate your product using one or the other basis of differentiation. If two brands sell exactly the same product, the one with better brand image and equity will achieve better sales whereas the other will not. So, brands that have entered the market late must use some sort of differentiation to position their product and achieve deeper and quicker penetration. Either you can price your product lower or you can position your product as providing a distinct advantage not generally available with the other products. Differentiation is a strategy that helps you position your brand as distinct from any existing brand. It also helps you focus on your niche market and thus generate better value from your marketing strategy.
This strategy also helps achieve better penetration and market position and find customers quicker. Benefits of differentiation are deeper and you can recall several examples in your daily life when you have selected one product from another similar looking one. It also helps at customer retention by building customer loyalty. If your aunt uses the same detergent for last seven years then there must be something original, differentiated and unique about that product. Might be it is better for her hands or it is more effective with the washing machine. Coca Cola and Pepsi are fighting in the same market. They are engaged in a tight combat but somewhere each has a distinct strategy. You can note sharp points of distinction in their marketing techniques, products’ flavors and even their targeting methods. It is just all about creating unique value.