Skip to content
× FreshBooks App Logo
FreshBooks
Official App
Free - Google Play
Get it
You're currently on our US site. Select your regional site here:

What is Marketing?

  1. Marketing Strategy
  2. Social Networking
  3. Marketing Campaign
  4. Market Research
  5. Product Differentiation
  6. Target Market
  7. FDD
  8. Marketing

Save Time Billing and Get Paid 2x Faster With FreshBooks

Try It Free ➝

Product Differentiation: Definition, Types & Examples

Updated: November 25, 2022

Consumers are overwhelmed with so many choices when it comes to products. There can be several that offer similar features and benefits. So how does a customer choose between their options? When you have a distinct product it’s critical to make it stand out in a competitive market.

How exactly are you supposed to position your product and what steps can you take? Don’t fret! This guide covers everything you need to know about product differentiation. Keep reading to learn more about what it means, the main types, and a few examples.

List IconTable of Contents


    KEY TAKEAWAYS

    • The main elements of product differentiation include marketing, packaging, pricing, and design.
    • You can gain a competitive advantage in the market with effective product differentiation.
    • An effective differentiation strategy should highlight the main features. And how the product offers benefits the competition doesn’t.

    What Is Product Differentiation?

    In its simplest form, product differentiation is how you’re going to install a strategy. This is to separate your product from the competition. It involves highlighting different features and benefits that make the product stand out. This is important to do so that potential customers will be more likely to choose your product.

    When you put a marketing strategy in place, you can install certain methods. This allows your product to grab the right attention. By doing this effectively, you’re able to build your brand awareness. With more awareness, customers have a higher chance to recognize your business. Plus, it’s going to increase the opportunities for customers to choose your product. This is versus an undifferentiated product.

    There are certain qualities that a business can hold. This is to maximize its differentiation efforts. This can include things like:

    • Having a strong team dedicated to research and development
    • Implement an innovative mindset
    • Obtain the right resources to create a product or service that’s high-quality
    • Effective marketing and sales strategies
    • In-depth communication plans to highlight the benefits and competitive advantage your product offers

    The specific type of differentiation strategy you install will depend on the industry. As well as things like how competitive the market is. And the type of product you’re selling will also get taken into account.

    Skip The Crash Course In Accounting

    How Does Product Differentiation Work?

    When it’s all broken down, product differentiation is essentially a marketing strategy. It’s designed to encourage your customers to choose your product. This is when faced with a decision between you and your competitor. And in a crowded, ultra-competitive market, this is extremely important for brand success.

    It identifies the main qualities your product has. As well as the qualities that set it apart from similar products. So, when a customer is faced with similar products, you can highlight the main differences. This will help to drive consumer choice.

    Different Types of Product Differentiation

    There are different types of differentiation to focus on. This is depending on the type of product you offer and the industry you’re in. Some of the most common types include:

    • Overall quality
    • Primary features
    • Total reliability
    • Price
    • Location of the product
    • Your brand image and reputation
    • Specific types of marketing and promotion tactics
    • The distribution channels you use
    • How efficient your post-sale support is, including customer service
    • Ability for customization
    • Other features and overall functionality

    There are several different ways to differentiate your product. Although there are three primary categories. These include:

    • Vertical differentiation
    • Horizontal differentiation
    • Mixed differentiation.

    Let’s take a closer look into each of these categories of product differentiation. And see how they work with objective measurement.

    Vertical Differentiation

    When you have a vertically differentiated product, it’s going to be heavily focused on the price. The price points and the main points of quality are going to be different. This is for vertically differentiated products. Within this category, there’s a general understanding. This is because if every option were the same price, one would be a clear winner.

    One of the most common examples of vertical differentiation is a branded product. This is versus a generic product. Especially when it comes to the personal taste of target markets.

    Horizontal Differentiation

    Horizontally differentiated products don’t focus on the overall quality or price point. Rather, these types of products will typically have identical or similar starting prices.

    There is one main thing to take into consideration with horizontally differentiated products. And that is the customer’s personal preference. For example, think of how customer preference comes into play with Pepsi vs. Coca-Cola. Or, when it comes to specific bottled water brands or different types of dish soap. It’s all about customer preference.

    Mixed Differentiation

    Mixed differentiation is also commonly referred to as simple differentiation. In this case, it takes a combination of different factors into account. And, it‘s common for mixed differentiation to get combined with horizontal differentiation.

    A prime example of this differentiation is when consumers compare vehicles that are in the same class. They also get compared based on similar price points. Even if they’re from two different manufacturers.

    Get A Headstart On Your Accounting

    Advantages and Disadvantages of Product Differentiation

    It’s worth understanding the advantages and disadvantages that come with product differentiation. Knowing the strengths and opportunities will allow you to make more informed decisions. Doing this will also let you see how some of these decisions impact your business.

    Advantages of Product Differentiation

    • It creates value
    • Helps develop brand loyalty
    • Lets you compete in a different way

    Disadvantages of Product Differentiation

    • Increasing revenue isn’t guaranteed
    • The perceived value of your product could decline
    • You could strain and max out your current resources

    There’s no perfect recipe for this as the type of product you offer and your industry will come into play.

    Product Differentiation Examples

    Let’s say you have a new product and want to highlight the cost advantages. But then a competitor comes along and makes a virtually identical product. You might then decide to price yours at a lower price point. As well, you might also highlight that it comes with a reusable filter. This is another feature that can sway consumers since it can come with cost savings.

    A good mainstream example of product differentiation is Nike. They use effective branding techniques to stand out. This is from the likes of Adidas, Under Armour, and Reebok International. These companies partner with high-profile athletes to promote the brand.

    Nike differentiates itself from its competitors extremely effectively. This is by placing a large focus on creating new and innovative product lines. These new lines are put in place to generate excitement. By maximizing these efforts, they’re able to generate further interest. This is from both new customers and existing customers.

    Summary

    Product differentiation is a strategy used to create separation. This is the separation between your product and the competition. The goal is to pique consumer interest and grab the attention of consumers. Ultimately, it’s designed to encourage customers to choose your product over one that might be similar.

    It’s beneficial to have a strong and dedicated team that focuses on research and development. This helps you develop effective marketing and sales strategies that focus on maximizing results. However, it’s important to understand that your strategy will often depend on the type of competitive products you offer. It will also often depend on which industry you operate in.

    Some of the most common differentiators include quality, features, reliability, and price. They can also include how consumers perceive your brand image. As well as the marketing and promotion tactics used, and functionality.

    Fresh Starts Deserve FreshBooks

    Frequently Asked Questions

    What Is the Best Example of Differentiation?

    This is all going to depend on the type of product and the customer base that it’s marketed to. Some of the best examples of differentiation include things like the improved taste. As well as using healthier ingredients, or being involved in socially conscious initiatives.

    What Is Product Differentiation in Monopolistic Competition?

    Within the monopolistic competition, a business uses product differentiation to distinguish itself. And it is used to set its product apart from other, similar companies. This helps it stand out in a competitive market.

    Is There Product Differentiation in Oligopoly?

    Product differentiation works similarly in oligopoly competition as it does in monopolistic. The key difference is that creating products in an oligopoly requires high capital. And is much harder to break into.

    How Does Branding Help in Creating Product Differentiation?

    Branding is how one business is going to stand out from another. By creating a unique product or using unique names, symbols, or signs, the business can control and secure the market for its products.

    What Companies Use Product Differentiation?

    Almost every company needs to implement product differentiation. It’s a vital step to stand out from the competition. Some of the most popular examples of differentiated companies include Amazon and Apple. As well as Emirates, Chipotle, and Hermes.

    WHY BUSINESS OWNERS LOVE FRESHBOOKS

    553 HRS

    SAVE UP TO 553 HOURS EACH YEAR BY USING FRESHBOOKS

    $ 7000

    SAVE UP TO $7000 IN BILLABLE HOURS EVERY YEAR

    30M+

    OVER 30 MILLION PEOPLE HAVE USED FRESHBOOKS WORLDWIDE

    Try It Free for 30 Days. No credit card required. Cancel anytime.