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LESSON 9

LESSON 9

PRODUCT AND SERVICE DIFFERENTIATION

Product and Service Differentiation. In economics and marketing, product differentiation (or
simply differentiation) is the process of distinguishing a product or service from others, to make
it more attractive to a particular target market. This involves differentiating it from
competitors' products as well as a firm's own products.

Product/Service differentiation: Product/Service differentiation is a market strategy that

businesses use to distinguish a product/service from similar offering on the market.

Advantages of Product/Service Differentiation

 Value Creation: A strategy that focuses on value highlights the cost savings or durability of a
product
 Non-Price Competition Lets companies distinguish themselves to differentiate on factors other
than price. For eg: Quality, Flavor, Design, etc.
 Brand Loyalty: Gains market share through perceived quality.

Characteristics of Product differentiation:  Price  Form  Features  Customization 

Performance quality  Durability  Reliability  Style

 Price Differentiates from the competitors on the basis of pricing factor

A joint venture of Aditya Birla group and Walmart. Claims to be the cheapest retailer on any
given day of the year. Provides huge discounts on bulk purchasing. Fastest growing retail
stores in India.
 Form Many products can be differentiated in the form- size, shape, or physical structure
of the products.
 Features - Products can be offered with varying features that supplements the basic
functions.
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 Customization Marketers can differentiate the products by customizing them for different
users
 Performance Quality - Performance quality is the level at which the products primary
feature operate.
 Durability - High end sports car company. Provides one of the fastest engine in the
world. An average Lamborghini can travel from 0-100 Km/Hr in less than 3 seconds.
More expensive than competitors.
In economics and marketing, product differentiation (or simply differentiation) is the process of
distinguishing a product or service from others, to make it more attractive to a particular target
market. This involves differentiating it from competitors' products as well as a firm's own products.

Characteristics of service differentiation.

Ordering ease - Delivery - Installation - Customer training - Maintenance and repair

 Ordering Ease -Ordering ease refers to how easy it is for you to place an order with the
company.
 Delivery- refers how well the product or service is delivered to the customer, covering
speed, accuracy and customer care.
 Installation & Training - Installation refers to the work done to make a product
operational in its planned location.
 Customer Training - refers to how the customer’s employees are trained to use the
vendor’s equipment properly and efficiently.
 Maintenance and Repair - Maintenance and repair program helps customers keep
purchasing products in good working order, an important consideration for many products.

In economics and marketing, product differentiation (or simply differentiation) is the process of
distinguishing a product or service from others, to make it more attractive to a particular target
market. This involves differentiating it from competitors' products as well as a firm's own products.

What Is Product Differentiation?

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LESSON 9

Product differentiation (or just differentiation) is a marketing process of differentiating an offering

(product or service) from others in the market, to make it more appealing to the target audience. It
involves defining the offering’s unique position in the market by explaining the unique benefit it
provides to the target group. This may also be referred to pinpointing a unique selling proposition of
the product to make it stand out from the crowd.
Why Is Product Differentiation Important?
The increased competition has divided the demand among different players in the market. This has
made it very important for businesses to make their customers understand what different they have to
offer.
Besides making the product survive in the market, product differentiation is important for the following
reasons:
 Product differentiation translates the product attributes into benefits.
 It answers the biggest question of the customers – ‘What’s in for me?’.
 It gives the customers a reason to purchase the brand’s product and repeat the purchase.
 It increases the recall value of the product.
 It increases brand loyalty and builds brand equity.
 Attribute-based differentiation is important for the brand to defend their price from levelling
down to the bottom part of the price spectrum.
Product Differentiation Types & Factors
Differentiation depends on customer perception. It’s not how the brand sees its product, it is how the
customer recognizes the product. There are three types of product differentiation:
1. Horizontal differentiation: Distinctions in products that cannot be evaluated in terms of quality.
E.g.: Mineral water brands.
2. Vertical differentiation: Distinctions in products that can be evaluated in terms of quality. It’s a
case where it is possible to say that one good is better than the other.
3. Simple (or Mixed) differentiation: Differentiation based on numerous characteristics.

Cross-selling-definition, importance, examples & strategies

A product can be differentiated based on:
 Price: The price is the most common determinant of which target group will be attracted to a
brand’s product. It separates a premium product from economical products. Example: Zara’s
products are considered premium products.
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 Features: Features like size, shape, ingredients, origin, etc. differentiate products in the same
price spectrum. They also help the brand to back their high pricing decisions.
 Performance & Quality: A good quality product always stands out from standard quality
products. Example: Duracell lasts 10 times longer than ordinary batteries.
 Reliability: Some products are known to be more reliable than others. That is, there is a less
probability of them malfunctioning or failing within the given time period.
 Looks: Looks play a very important role in differentiating the product especially in the case of
apparels and other luxury products.
 Channels of Distribution: Channels of distribution also plays a vital role in differentiating a
product from the competition. For example, Amway uses a selective distribution strategy to
position itself as a quality brand.
 Complexity: The level of complexity of usage of a product plays a very important factor in
differentiating products, especially in the technology industry.
 Location: Manufacturer’s location, brand’s home country, and retailers’ location play an
important role in differentiating a product from its competitors.
 Marketing efforts: Marketing efforts give rise to the brand image which is a decent product
differentiator. Other marketing efforts like sales promotion act as an add-on to differentiation
strategy.
 After-sale services: Good after sale services make the customers have faith in the brand and
make them differentiate it from others.
Services as offering add many more factors of differentiation. These are ease of ordering, delivery
(on time or before time), experience, company-customer relationship, personalization, etc.

Product Differentiation Examples

A person doesn’t need to travel to places to witness examples of product differentiation. Product
differentiation can be witnessed in grocery stores, TV advertisements, and even when you
choose Facebook over Google+.
Examples of Simple Product Differentiation
 Choosing an iPhone over an Android as the customer considers iPhone to be a status symbol
and believes that it has an easier interface as compared to Android.
 Choosing a Tag Heuer watch over Titan as the customer prefers a Swiss watchmaker. Plus, he
believes that Tag Heuer is a better brand than Titan.
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 Choosing to order a product on Amazon than to visit Walmart as the customer doesn’t want to
leave his house.
Examples of Horizontal Product Differentiation
 Choosing between different mineral water brands. The customer doesn’t know the real difference
but chooses one anyway.
 Two ice-cream stalls selling similar ice-creams, but the customer chooses the one closer to them
because (s)he is indifferent between them.
Examples of Vertical Product Differentiation
 Intel i3 and Intel i5. The customer clearly knows the difference between the two and chooses one
according to his preference.
 Choosing Duracell over other batteries because the customer believes that it lasts longer.
Advantages Of Product Differentiation
Besides being an imperative for survival in the competitive market, product differentiation has the
following advantages:
 Creates Value: Product differentiation gives a reason to the customers to choose the brand over
others.
 Helps in defending high prices: It helps the companies to give a reason why they charge a high
price for their product.
 Helps in non-price competition: It allows the companies to compete in areas other than price.
 Creates brand loyalty: A successful differentiation strategy creates brand loyalty among the
customers.
 Creates a perception of no close substitutes: A successful product differentiation strategy
may create a perception among the customers that there isn’t any substitute available in the
market.
Disadvantages Of Product Differentiation
 Added pressure on the manufacturers: Product differentiation adds a substantial amount of
pressure on the manufacturers to decide which attribute could turn out to be the USP for that
product.
 Can increase prices: Sometimes, differentiating a product adds to the production and marketing
costs which can be transferred to the end-users.
 Increased Revenue Not Guaranteed: Product differentiation doesn’t guarantee more sales and
more revenue as a business can even fail in predicting whether the customer would appreciate
the USP or not
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6 Ways to Differentiate Your Business from the Competition

 Differentiation allows you to provide superior value to customers at an affordable price,

creating a win-win scenario that can boost the overall profitability and viability of your
business. there are six primary ways to differentiate, including product, service, channels of
distribution, relationships, ___________

 However, not all differentiation strategies are equally effective, and some methods may be
more important to invest in than others in order to stand out from the competition. Read on to
learn more about these different strategies and the key advantages and disadvantages
associated with each one

Product Differentiation Features, performance, efficacy,

conformance, durability, reliability and
warranty
Service Differentiation Ordering ease, delivery, installation,
customer training, customer consulting and
other miscellaneous services
Channel Differentiation Coverage, expertise and performance
Relationship Differentiation Competence, courtesy, credibility, reliability,
responsiveness, communication
Reputation/Image Differentiation Perception, communication, advertising
Price Differentiation By Customer, by quantity, By Segment

Ways to Differentiate

Product Differentiation. Product differentiation is probably the most visible. It includes actual
physical and perceived differences, of which the latter can be acquired through advertising.
Product differentiation may take the form of features, performance, efficacy (or the ability of the
product to do what it is purported to do), meeting specifications, or a number of other criteria.
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This is the general area that most B2B marketers — and probably most consumer marketers
as well — spend the majority of their time and dollars.

The problem, though, is that product differentiation is short-lived. It is remarkably easy to

duplicate almost any product innovation. The western world has a sophisticated intellectual
property rights ethic and legal system that provides copyright and patent protection. From a
practical standpoint, though, these do not present challenges. In fact, many businesses
choose strategically not to patent since it tells competitors exactly how to duplicate the
advantage. At best, a product innovation is protected for the life of the patent. At worst, when a
patent does not exist, anyone with enough capital to buy a machine may be a competitor in a
matter of days or weeks.

 Service Differentiation. Differentiation of service includes not only delivery and customer
service, but all other supporting elements of a business such as training, installation, and ease
of ordering. To many, these seem like the simple components of a business — the blocking
and tackling or the foundational elements that do not require sophistication. But think about a
business like McDonald’s. Like their Big Mac or not, they know how to differentiate on service.
With very few exceptions, you will get the same product and the same service at a McDonald’s
in Texas that you will get in Georgia, Connecticut, or California. And in each location, the fries
will be cooked the same, have the same amount of salt, and be served up equally as fresh
from the fryer.

Distribution Differentiation

Channels of distribution can also be an effective means of differentiation. Distribution can

provide coverage or availability, immediate access to expertise, and greater ease of ordering,
and higher levels of customer or technical service.

For many manufacturers facing a fragmented market, it is not feasible to reach the end user
without the distribution function. Building materials, for example, have to somehow move from
factory plant to contractor. Such products typically move through two stages of distribution
including master distributors, specialty dealers, and retailers.
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 Relationship Differentiation. An often overlooked means of differentiation is through company

personnel. Employees, associates, or team members with customer interface can provide and
demonstrate competence, courtesy, credibility, reliability, and responsiveness. Responsible for
executing day-to-day client-facing communication, they are the linkage between the product
and customer. If that linkage breaks down, the business is destroyed.

 In many businesses, the sales representative, CSR, or the technical service representative
becomes a trusted member of the customer’s team, ensuring that the product is delivered on
time and works as it is supposed to, while resolving any issues quickly and accurately.
Performance like this creates emotional bonds between the vendor and customer.
 This avenue of differentiation is closely related to service, but focuses specifically on the
people. Customers want to conduct business with people, not an institution. Building this
relationship takes time, but establishes a highly differentiated position.

Image/Reputation Differentiation

 Some businesses set themselves apart by their image either as part of another differentiation
avenue or as a separate strategic path. Normally, image is created by other forms of
differentiation such as high levels of service, superior product quality, or performance.

 Image is controlled and managed by symbols used in communications, advertising, and all
types of media — written, digital, and audio, as well as the atmosphere of the physical place
where customers encounter the business. This is not limited to retail businesses only.
 An image or reputation can be a daunting hurdle for potential new entrants. DuPont, for
example, generally has a strong image as a technical powerhouse in almost all markets in
which they participate. The company employs a large number of engineers, scientists, and
product development experts. Their sales reps often have a strong technical education or
background, and their products are positioned as being leading edge. Milliken and Company
has a similar image. For the potential new start-up wishing to compete against such a
juggernaut, often the only option is a type of guerilla warfare.
 Brand does not automatically differentiate a company from its competitors. The brand has to
stand for something, be recognized by the target audience, and communicate something
unique and different from the competition. That takes a large marketing budget to pull off
successfully. It is understood that it takes seven repetitions of any message to even be heard.
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Branding is much more than just creating a logo. It is the ongoing communication of your value
proposition in a meaningful and effective way.
 With a small marketing budget, the smartest, most effective strategy is to move away from a
branding strategy and towards a customer-driven strategy. Pick a handful of customers that
can drive the success of your business. That could be anywhere from 3 to 4 or 15 to 20, but it
is not hundreds. Then focus all of your budget on these companies. Give them exactly what
they want, and do it better than anyone else can. You will increase your share of their
business, and they will become loyal advocates and promoters of your business.
 Price Differentiation. Successfully competing on price requires recognition that every customer
has a different price they would be willing to pay for your product. Segmentation and
differentiation allows a business to come close to maximizing the potential revenue by offering
each segment a differentiated product at a different price.
 Price differentiation (or discrimination) recognizes that the value of goods is a subjective
reality, which varies by customer, use occasion, and operating environment. In the B2B world,
most prices are subject to some kind of negotiation, and some customers are prepared to pay
more than the prevailing market
price. In short, price discrimination allows a business to capture consumer surplus — the difference
between the amount consumers are willing to pay for a good or service and the amount that they
actually pay.
Factors to Consider for Differentiation
A difference is worth establishing when it meets at least one of the following criteria:
 Valuable: the perceived benefit exceeds the cost
 Important: delivers a benefit critical to success
 Distinctive: unique or offered in a distinctive way
 Superior: better technology, faster
 Emotional: ties to a core emotion — love, hate, desire
 Communicates: understood and visible
 Preemptive: cannot be easily copied
 Affordable: customers can pay the higher price
 Profitable: contribution (margin times volume) exceeds cost of difference
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Summary of Key Differences Between Services and Products

1. Products are tangible – they are physical in nature such that they can be touched, smelled, felt and
even seen. Services are intangible and they can only be felt not seen.
2. Need vs. Relationship– a product is specifically designed to satisfy the needs and wants of the
customers and can be carried away. However, with a service, satisfaction is obtained but nothing is
carried away. Essentially, marketing of a service is primarily concerned with creation of customer
relationship.
3. Perishability- services cannot be stored for later use or sale since they can only be used during that
particular time when they are offered. On the other hand, it can be seen that products are perishable.
For example, fresh farm and other food products are perishable and these can also be stored for later
use or sale.
4. Quantity- products can be numerically quantified and they come in different forms, shapes and sizes.
However, services cannot be numerically quantified. Whilst you can choose different service
providers, the concept remains the same.

5. Inseparability- services cannot be separated from their providers since they can be consumed at the
same time they are offered. On the other hand, a product can be separated from the owner once the
purchase has been completed.
6. Quality- quality of products can be compared since these are physical features that can be held.
However, it may be difficult to compare the quality of the services rendered by different service
providers.
7. Returnability- it is easier to return a product to the seller if the customer is not satisfied about it. In
turn, the customer will get a replacement of the returned product. However, a service cannot be
returned to the service provider since it is something that is intangible.
8. Value perspective- the value of a service is offered by the service provider while the value of the
product is derived from using it by the customer. Value of a service cannot be separated from the
provider while the value of a product can be taken or created by the final user of the product offered
on the market.

9. Shelf line- a service has a shorter shelf line compared to a product. A product can be sold at a later
date if it fails to sell on a given period. This is different with regard to a service that has a short shelve
line and should be sold earlier.
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HERMEITA M. ANTIVOLA, Ph.D.

Instructor