Product differentiation is a critical component of any marketing strategy. As a company builds its unique brand story, it should also include the solution's most distinguishable benefits.
Whether someone offers a product or service, there are several ways for customers to perceive the uniqueness of a brand’s offerings.
What is Product Differentiation?
Product differentiation is defined as a marketing or advertising strategy that distinguishes a product or service from its competitors. It starts with identifying a product or service's unique features and benefits. Then, the company must communicate these factors to the target market.
Product differentiation breaks down into three different types: horizontal differentiation, vertical differentiation, and mixed differentiation.
I. Horizontal Differentiation
Horizontal differentiation is when a consumer decides between two products based on preference. Instead of measurement like price, the customer will choose based on how the brand makes them feel.
Horizontal differentiation occurs when most of the products on the shelf have similar costs, qualities, and features. It all comes down to a subjective decision.
II. Vertical Differentiation
Vertical differentiation is a more objective approach to buyer decision-making. Consumers will prioritize products based on a measurable attribute, like quality or price.
Once buyers rank their products based on these factors, they will make a purchasing decision accordingly.
III. Mixed Differentiation
Mixed differentiation involves a more complex decision-making process. It is a combination of horizontal and vertical differentiation.
For example, someone may decide on a restaurant based on price and average customer rating, which are both vertical differentiation.
However, the same person might also consider the type of restaurant (Mexican, Italian, or Chinese).
The Importance of Product Differentiation
There are several reasons why product differentiation is an essential component of a business. First, a differentiated service or product can spark brand loyalty. If a business gains enough brand loyalty, customers will stick with it even if it offers a higher price point. Customers may also perceive a product to be worth more based on how the company differentiates it.
Product differentiation is also critical in industries where products are not viewed as being much different from a competing brand. In a case like bottled water or gum, the product differentiation strategy may promote that the product comes at a lower price point. The company mission or values could also be a concept to evaluate.
What Does a Product Differentiation Strategy Look Like?
The main goal behind a product differentiation strategy is to communicate that a product or service can perform in ways that the alternatives cannot.
It should also highlight a unique benefit or feature associated with that product.
Oftentimes, people want to know how long-lasting the product will be. The performance element of product differentiation will describe the durability and reliability of the product.
When a company advertises performance, it should clearly explain why the product is built for the long haul. It could also outline some data and statistics to back up the claims.
For example, some laptops are more durable and have longer battery life. Consumers may choose to buy the laptop on these two factors alone.
Price is one of the more common product differentiation strategies. This approach will appeal to consumers in two different ways.
First, a company might market at a lower price to attract customers who are on a tight budget. However, a luxurious company might advertise a high price point to high-end buyers.
For example, a grocery store might advertise low price points and frequent discounts to the budget-minded family.
On the other hand, a luxury car company will appeal to a more affluent demographic with its higher price points.
The location element of product differentiation is a popular approach for local businesses. Compared to a massive global competitor, a family-owned business can advertise its strong, intimate relationship with the local community.
Local restaurants will also advertise their food quality by claiming that it sources their ingredients from nearby farmers.
Product differentiation comes in many forms: price, performance, and location. Each brand, product, or service has a unique story behind it. It is a company’s responsibility to communicate to their audience in the most innovative way possible.