What is Product Differentiation? How Businesses Can Stand Out

It is vital for companies to identify what makes their products and services stand out among competitors. By identifying this differentiator, organizations can increase brand loyalty, as well as the projected value of a business, leading to more sales and profit.

What is Product Differentiation?

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Product differentiation allows an organization's services or products to stand apart from the competition in the eyes of the target audience. Differentiators can range from unique benefits and features, lower prices, packages, and customer service to higher quality products or services.

Referenced as a marketing strategy, product differentiation creates a competitive advantage. It provides a sustainable technique to maintain steady revenue even in more saturated markets.

In order for businesses to implement this practice successfully there needs to be a clear distinguishing factor about the company's offerings. This unique feature should also be communicated clearly to potential customers through the brand's voice, marketing tactics, and visual and written communication.

Types of Product Differentiation

The three leading types of product differentiation include vertical, horizontal, and mixed differentiation. Choosing and utilizing the most applicable type can help businesses to effectively stand out from the crowd.

  • Vertical Differentiation
These products and services are heavily dependent on price. Vertically differentiated items have varying price points and quality offerings.

An example of this is the difference between a designer or branded piece of clothing compared to a generic clothing piece of a similar design with a lower price tag. The value of the branded clothing is distinguished, with the price reflecting greater quality, value, and desirability among consumers.

  • Horizontal Differentiation
This differentiator is not associated with price or quality, but rather stays aligned with the regular market price. In this situation, the customer's personal preference is what creates the distinguishing factor.

When purchasing decisions are made horizontally, this is purely based on the customer's preference, such as the packaging, shape, color, or taste, for example. The difference in dish soaps is a common example of horizontal differentiation.

  • Mixed Differentiation
Also referred to as simple differentiation, this is a combination of the horizontal and vertical differentiation types.

Two distinct manufacturers could offer the same type of product at a similar price and quality. However, the brands might hold differences in terms of their benefits, extra services, or other factors that make a customer choose one model over another.

How to Achieve Product Differentiation

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Establishing a situation where both the company and the consumer can benefit from the differentiation is ideal. Businesses can use the following ways to achieve sustainable product differentiation.

1. Product Origin

Businesses can attract the customers' attention by sharing the place of origin of the product, manufacturing, ingredients, etc. This can be achieved by adding to the product description with phrases such as Handmade in Bali to distinguish the product from similar items from competitors.

2. Size Differentiation

Producing a range of unique product sizes is another differentiation technique. It is also advantageous to share how this item is different in size to competitor's products in marketing materials.

For example, a beach supplies company can advertise that their towels are 1.5 times the size of the average beach towel.

3. Unique Packaging

As the consumer's first impression is what they see, the packaging is essential to take into account for successful product differentiation.

Choosing biodegradable materials and marketing the packaging as eco-friendly is a great way to separate this product from the crowd and stand out as an organization with strong moral values. This further heightens the value perception of the brand and product.

4. Branding

If the product or service is very similar to competitors in function and appearance, the branding of the product and company could be the determining factor for shoppers.

Consider unique branding methods, research consumer preferences (simplicity, luxury, etc.), and direct the decorative, written, and visual marketing efforts to align with this style of branding.

5. Diverse Features

Another product differentiation strategy is adding features or additional ingredients to the product. Customizable products are desirable for customers, so if there is a potential to do this, consider adding customization features.

6. Bonuses

Offering bonuses that don't slash the product's profit margin can heighten the value perception for the item. This could involve giving consumers an additional product, such as small, cheaply-sourced items, or a discount on the next purchase.

7. Consumer Reviews

A key step in product differentiation is to analyze a competitor's public reviews. This will highlight common weaknesses in competing organizations, allowing the business to take advantage of this differentiation opportunity in their marketing material.

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Through the product differentiation process, companies can communicate their distinguishing factors such as price points, value perception, and additional features. Ultimately, successful product differentiation creates a strong value proposition to make a product or service more attractive to the target market.