Posted in Marketing and Strategy Terms, Total Reads: 620

Definition: Differentiation

Differentiation in marketing is the process of distinguishing a company’s product/service from those of its competitors and from its own products in order to make it more attractive to a particular target audience.

Differentiation is more a description of the uniqueness of the product/service than actually changing the product/service characteristics. This is done in order to demonstrate the unique aspects of a firm's product and create a sense of value. The term unique selling proposition (USP) refers to advertising to communicate a product's differentiation.

The brand differences are usually emphasised in the packaging and advertising. The physical product itself may be quite similar. Differentiation is mainly a matter of customer perception: causes of differentiation may be due to changes in any part of the supply chain: right from manufacturing to distribution and sales & marketing.

The major sources of product differentiation are as follows.

• Differences in quality which are usually accompanied by differences in price

• Differences in functional features or design

• Ignorance of buyers regarding the essential characteristics and qualities of goods they are purchasing

• Sales promotion activities of sellers and, in particular, advertising

• Differences in availability (e.g. timing and location).

The term is used frequently when dealing with freemium business models, in which businesses market a free and paid version of a given product. Given they target a same group of customers, it is imperative that free and paid versions be effectively differentiated.

Differentiation reduces the directness of the competition by making categorization more difficult and inviting lesser comparisons with the competition. Differentiation means that competition moves from being price-based to being non-price based (packaging, distribution, etc.)


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