What product differentiation means
Definition
Product differentiation: making a product stand out from those of rivals, so customers choose it for a reason other than a low price.
- In a competitive market, dozens of products do much the same job, so the customer picks on something, and differentiation decides what that something is.
- A product customers see as different is worth more to them, which means the business can charge a higher price and keep a wider profit margin on every sale.
- Differentiation also steadies sales, because a customer who wants this particular product will not swap it for whatever is cheapest that week.
Example
A branded bottle of water such as Evian sells for several times the price of a supermarket own label, although both are safe and taste much the same, because customers are paying for the brand rather than the liquid.
The unique selling point
Definition
Unique selling point (USP): the one feature or benefit a product has that no competitor offers, giving customers a clear reason to choose it.
- A USP gives the marketing a single message that no rival can honestly repeat, which makes promotion cheaper and easier to remember.
- In a crowded market this is what stops the decision coming down to price, because a customer who wants that particular feature has nowhere else to get it.
- USPs wear out, because a good idea gets copied once rivals see it working, so a business has to keep developing the next one.
Example
- Brompton's folding bikes fold small enough to carry onto a commuter train, which no ordinary bike can do, and are still built in London.
- Dyson's original USP was a vacuum that needed no bag, and once rivals launched bagless machines of their own Dyson had to differentiate again on power and cordless design.
Brand image
Definition
Brand image: the set of ideas and feelings customers hold about a brand, such as luxury, value, reliability or fun, before they have even tried the product.
- A good brand image builds brand loyalty, so customers buy again without comparing every alternative, and keeping a customer costs far less than winning a new one.
- It supports a higher price, because customers who trust the name accept that it costs more than an unfamiliar rival on the same shelf.
- It makes new products easier to launch, since a bar of chocolate sold under the Cadbury name starts with recognition and trust that a new business would spend years building.
- Image is built by every experience a customer has, from product quality and packaging to delivery and complaint handling, which is why one poor experience damages it faster than advertising repairs it.
Example
Cadbury's purple wrapper is recognised across a shop before a single word is read, so the packaging alone tells shoppers what the product is and what to expect of it.
Other ways to stand out
- Design: a distinctive shape or look differentiates a product even when the function is ordinary, which is why a Mini is recognisable from across the street.
- Quality: better ingredients, materials or build justify a higher price, which is how Waitrose competes with Aldi without ever matching its prices.
- Customer service: John Lewis trains staff to advise and adds long guarantees on electricals, giving shoppers a reason not to buy the identical television cheaper elsewhere.
- How the product is made: Fairtrade cocoa, British sourcing or a repair service appeal to customers who care about those things more than about finding the lowest price.
Common Mistake
- A brand is not just a logo, because the logo is only a shortcut for everything customers have come to expect from the business.
- Differentiation only works if customers notice it and value it, so a feature nobody asked for simply adds cost and cannot be charged for.
Competing without cutting the price
- Price cuts are the easiest thing for a rival to copy, so a price war leaves every business in the market selling the same amount for less money.
- Differentiation moves the competition onto ground rivals cannot copy by lunchtime, such as a patented design, a reputation or a trained workforce.
- The more crowded the market and the more alike the products, the more the business depends on a USP and a strong image to survive in it.
Exam technique
- Explain the benefit to the business of having a USP needs a chain, so go from the feature, to why customers want it, to the higher price or the repeat purchase it produces.
- The usual weak answer says a USP means more customers and stops there, when the point is that it removes price as the reason to buy.
- If asked about brand image, remember it costs time and money to build, so weigh that against the higher prices and loyalty it brings.
Self review
- Define product differentiation in one sentence.
- What is a USP, and why does it matter most in a competitive market?
- Give two benefits to a business of a good brand image.
- Name four ways other than price by which a product can be made to stand out.
- Why is competing on price alone dangerous for a business?
