MARKETING MANAGEMENT ASSIGNMENT On

Product Differentiation Strategies

Submitted By, Remya G Rajan 215113092

Contents
Introduction Product Differentiation Product Differentiation Strategies Differentiation based on Opportunities in External Environment Uses of Product Differentiation Advantages of Product Differentiation

Introduction
To be branded, products must be differentiated. Successful companies strive to distinguish their products from competitors through differentiation strategies. In an often crowded product market, customers crave product distinctions to help them make purchasing decisions. By offering greater values, customization features and convenience options, customers can be influenced to purchase products. The best product differentiation strategies increase brand image, cater to customer preferences and increase sales. Differentiation primarily affects performance through reducing directness of competition: As the product becomes more different, categorization becomes more difficult and hence draws fewer comparisons with its competition. A successful product differentiation strategy will move your product from competing based primarily on price to competing on non-price factors (such as product characteristics, distribution strategy, or promotional variables). Marketers are always looking for new dimensions of differentiation.

Product Differentiation
Product differentiation is a business strategy whereby firms try to gain competitive advantage by increasing the perceived value of their products or services relative to the perceived value of other firms products or services (CharlesW.L.Hill, Gareth R.Jones). It is a strategy by which a marketer offers a product as unique in industry by proving that it provides a distinct advantage over other products by setting it apart from other competitors brands in some way or the other, besides price. The concept of being unique or different is far more important today than it was ten years ago. The key to successful marketing and competing is differentiation. Product differentiation is all about Customer Perception. Products sold by two different firms may be exactly the same, but if customers believe the first is more valuable than the second, then the first product has a differentiation advantage. The existence of product differentiation, in the end, is always a matter of customer perception but firms can take a variety of actions to influence these perceptions. Differentiated strategies include targeting, positioning and segmentation. Ultimately the differentiation strategy the business uses must target a segment of the market and deliver the message that the product is positively different from all other similar products available. Thus Differentiation is the art of designing a set of meaningful differences to distinguish the companys offering from competitors offering.

Product Differentiation Strategies

Physical products vary in their potential for differentiation. At one extreme, we find products that allow little variation: chicken, aspirin, and steel. Yet even here, some differentiation is possible: Perdue chickens, Bayer aspirin, and India's Tata Steel have carved out distinct identities in their categories. At the other extreme are products capable of high differentiation, such as automobiles, commercial buildings, and furniture. Here the seller faces an abundance of design parameters, including form, features, performance quality, conformance quality, durability, reliability, repairability, and style. 1. FORM Many products can be differentiated in formthe size, shape, or physical structure of a product. Pears Soap: Pears differentiates itself from other soaps with its glycerine content and its transparent form. Pears stand for gentleness and purity and it generally focuses on women and children segment. Scooty Pep: With its 95kg easy to handle gearless model with bright shades like pink, violet etc that are targeted for young, urban girls, Scooty Pep sets itself apart from its competitors. Bacardi Breezer: A rum based alcopop with 4% alcohol and fruity taste, Bacardy Breezers target the lady customers as a light drink and has been a real success. Pepsi My Can:

2. FEATURES Most products can be offered with varying features that supplement its basic function. A company can identify and select appropriate new features by surveying recent buyers and then calculating customer value versus company cost for each potential feature. The company should also consider how many people want each feature, how long it would take to introduce each feature, and whether competitors could easily copy the feature. Companies must also think in terms of feature bundles or packages. Auto companies often manufacture cars at several "trim levels." This lowers manufacturing and inventory costs. Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost. 3. PERFORMANCE QUALITY Most products are established at one of four performance levels: low, average, high, or superior. Performance quality is the level at which the product's primary characteristics operate. Firms should not necessarily design the highest performance level possible. The manufacturer must design a performance level appropriate to the target market and competitors' performance levels. A company must also manage performance quality through time. Continuously improving the product can produce the high returns and market share. Lowering quality in an attempt to cut costs often has dire consequences. Schlitz, the number-two beer brand in the United States in the 1960s and 1970s, was driven into the dust because management adopted a financially motivated strategy to increase its short-term profits and curry favor with shareholders. In fact, quality is becoming an increasingly important parameter for differentiation as companies adopt a value model and provide higher quality for less money. 4. CONFORMANCE QUALITY Buyers expect products to have a high conformance quality, which is the degree to which all the produced units are identical and meet the promised specifications. Suppose a Porsche 944 is designed to accelerate to 60 miles per hour within 10 seconds. If every Porsche 944 coming off the assembly line does this, the model is said to have high conformance quality. The problem with low conformance quality is that the product will disappoint some buyers. 5. DURABILITY Durability, a measure of the product's expected operating life under natural or stressful conditions, is a valued attribute for certain products. Buyers will generally pay more for vehicles and kitchen appliances that have a reputation for being long lasting. However, this rule is subject to some qualifications. The extra price must not be excessive. Furthermore, the product must not be subject to rapid technological obsolescence, as is the case with personal computers and video cameras. 6. RELIABILITY Buyers normally will pay a premium for more reliable products. Reliability is a measure of the probability that a product will not malfunction or fail within a specified time

period. Maytag, which manufactures major home appliances, has an outstanding reputation for creating reliable appliances. 7. REPAIRABILITY Repairability is a measure of the ease of fixing a product when it malfunctions or fails. Ideal repairability would exist if users could fix the product themselves with little cost in money or time. Some products include a diagnostic feature that allows service people to correct a problem over the telephone or advise the user how to correct it. Many computer hardware and software companies offer technical support over the phone, or by fax or email. Cisco put together a Knowledge Base of Frequently Asked Questions (FAQs) on its Web site which it estimates handles about 80 percent of the roughly 4 million monthly requests for information, and saves the company $250 million annually. Each new call and solution goes to a tech writer who adds the solution to the FAQs, thus reducing the number of future phone calls. 8. STYLE Style describes the product's look and feel to the buyer. Car buyers pay a premium for Jaguars because of their extraordinary look. Aesthetics play a key role in such brands as Absolut vodka, Apple computers, Montblanc pens, Godiva chocolate, and HarleyDavidson motorcycles. Style has the advantage of creating distinctiveness that is difficult to copy. On the negative side, strong style does not always mean high performance. A car may look sensational but spend a lot of time in the repair shop.

Differentiation based on Opportunities in External Environment

Trends or Fads: Firms can provide a differentiated product to satisfy the needs of customers who are responding to trends or fads. E.g.: Integrated mp3 players in Sunglasses. Government Policy: Changes in government policy provide many opportunities for firms to develop differentiated products. Tax incentives by the Indian government helped Introduction of the new electric car Reva. Social Causes: Social causes can create demand for differentiated products that help people further their cause of choice. For e.g. credit cards issued n partnership with World Wild Life Fund, retail stores become a point of differentiation in the credit card business. Economic Conditions: Economic condition creates opportunities for product differentiation. It can either cater to the premium or the low end market depending on the state of economy.

Uses of differentiation strategy:

A successful differentiation strategy creates a line of defences against Porter s five forces: rival competitors, buyers, suppliers, potential entrants, substitutes. Threats of potential entrants:

Product differentiation helps reduce the threat of new entry by forcing potential entrants to an industry to absorb not only the standard costs of beginning business but also the additional costs associated with overcoming current firms' product differentiation advantages. Threat of rivalry: Each firm in an industry attempts to carve out its own unique product niche. Rivalry is not reduced to zero, for these products still compete with one another for a common set of customers, but it is somewhat attenuated, because the customers each firm seeks are different. Threat of substitutes: Firms reduce the threat of substitutes by making a firm's current products appear more attractive than substitute products Threat of suppliers: Powerful suppliers can raise the prices of the products or services they provide. These increased supply costs must be passed on to a firm's customers in the form of higher prices. A firm without a highly differentiated product may find it difficult to pass its increased costs on to customers, since these customers will have numerous other ways to purchase similar products or services from a firm's competitors. Threat of buyers: When a firm sells a highly differentiated product, it enjoys a near monopoly in that segment of the market. Buyers interested in purchasing this particular product must buy it from a particular firm. Eg. Ipod.Any potential buyer power is reduced by the ability of a firm to withhold highly valued products or services from a buyer.

Advantages of Product Differentiation

1. Creates Value: When a company uses a differentiation strategy that focuses on the cost value of the product versus other similar products on the market, it creates a perceived value among consumers and potential customers. A strategy that focuses on value highlights the cost savings or durability of a product in comparison to other products. 2. Non-Price Competition: The product differentiation strategy also allows business to compete in areas other than price. For example, a candy business may differentiate its candy from other brands in terms of taste and quality. A car manufacturer may differentiate its line of cars as an image enhancer or status symbol while other companies focus on cost savings. Small businesses can focus the differentiation strategy on the quality and design of their products and gain a competitive advantage in the market without decreasing their price. 3. Brand Loyalty: A successful product differentiation strategy creates brand loyalty among customers. The same strategy that gains market share through perceived quality or cost savings may create loyalty from consumers. The company must continue to deliver quality or value to

consumers to maintain customer loyalty. In a competitive market, when a product doesn't maintain quality, customers may turn to a competitor. 4. No Perceived Substitute: A product differentiation strategy that focuses on the quality and design of the product may create the perception that there's no substitute available on the market. Although competitors may have a similar product, the differentiation strategy focuses on the quality or design differences that other products don't have. The business gains an advantage in the market, as customers view the product as unique.

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