Lecture 11 - Product Differentiation & Competition PDF

20MS2007 – Business Plan Topics: Possibility of creating product differentiation & Details about competition. Academic Year : 2022-2023 Semester : Even Semester (4th) Class : II B.Tech. CSE Batch...

20MS2007 – Business Plan Topics: Possibility of creating product differentiation & Details about competition. Academic Year : 2022-2023 Semester : Even Semester (4th) Class : II B.Tech. CSE Batch :6  Product Differentiation A product differentiation strategy involves identifying and communicating the unique qualities of a product or company while highlighting the distinct Product differentiation goes hand in hand with developing a strong value proposition to attract a product or service to a target market or audience. Why is product differentiation important? The goal of product differentiation is to create a competitive advantage or to make your product superior to alternatives on the market. In other words, you don’t just want to stand out from the competition, you want to stand above it.  It’s important to differentiate your product in any industry, especially if you’re in a crowded market with many competitors. The goal is to show potential customers what you can offer that other businesses can’t—and why that’s valuable to them. Businesses that make product differentiation work for them, have the following qualities: Innovative and inventive The resources to create high-quality products or services A strong research and development team Marketing and sales strategies that communicate the benefits and competitive advantage of the product or service A business's differentiation strategy will depend on its industry, competitive market, and the products or services it sells.  Ice Breaking What is Apple’s differentiation strategy? Apple differentiates its products by pricing them higher than its competitors implying that the products are better quality and incorporate the latest technology. The company also stimulates consumer interest by introducing hype before product launches through clever marketing and distribution strategies. Product Differentiation Factors Companies use a variety of ways to distinguish themselves from competitors. From pricing to customization, what sets you apart will depend on your brand's unique offerings.  Depending on the type of strategy you choose, there are specific areas where you can differentiate your product. 1. Price 6. Location 2. Quality 7. Brand image 3. Reliability 8. Customization 4. Features 9. Distribution channels 5. Design 10. Post-sale support Types of product differentiation Vertical differentiation Vertical differentiation is when customers choose a product by ranking their options from best to worst using an objective measurement, like price or quality. Vertical differentiation While the measurements are objective, the value each customer places on them might vary. For example, 1 meal at a restaurant may be lower in calories than another meal. To a customer who is watching their weight, the lower-calorie meal represents a "better" option. Another customer might place a higher value on price and choose the higher- calorie meal if it costs less. Examples of vertical differentiation: Apple vs. Android products, generic vs. branded items Horizontal differentiation Horizontal differentiation is when customers choose between products subjectively because they have no objective measurement to distinguish between best or worst. Example1: There is no qualitative measurement to rank ice cream flavours. Whether you choose chocolate, vanilla, or strawberry is entirely a matter of personal taste. If most of the products on the market cost about the same and have many of the same features or qualities, the purchase decision comes down to subjective preference. Example 2: A customer may choose the chicken sandwich from Shake Shack over Chick-fil-A due to a personal preference, rather than quality or cost concerns. Mixed differentiation Customers making more complex purchases tend to use a mix of vertical and horizontal differentiation when making purchase decisions.  Let’s say you’re shopping for a car. You might consider 2 similarly priced four-door sedans from 2 separate manufacturers. You’ll likely use mixed differentiation to make a decision. Objective measurements to vertically differentiate between them include gas mileage and safety ranking. Horizontal differentiation, between subjective preferences like design aesthetic and impression of the car brand, also plays a role in the decision. As with both horizontal and vertical differentiation individually, each customer will value the combination of these factors differently Advantages of Product Differentiation 1. It creates additional value. 2. It develops brand loyalty. 3. It allows businesses to compete in different ways. Advantages of Product Differentiation 1. It creates additional value. Product differentiation will give your prospective customers added value. This value can either come directly from the product and service, or from the brand perception. Advantages of Product Differentiation 2. It develops brand loyalty. Every time people see your products on store shelves or in an online ad, they'll know exactly what your brand represents. And they'll be more likely to choose your product over the competition. Advantages of Product Differentiation 3. It allows businesses to compete in different ways. With product differentiation, companies have the ability to compete in areas other than price. They can be innovative in style, quality, features, etc. It's up to the business to decide which area of differentiation will work best for their target markets. Disadvantages of Product Differentiation 1. Revenue increases are not guaranteed. 2. The offering's perceived value can decline. 3. It can strain resources. Disadvantages of Product Differentiation 1. Revenue increases are not guaranteed. Will consumers find value in the unique features your product provides? A differentiation strategy doesn't necessarily guarantee that consumers will find the value that separates your product from other, standard options. For example, if your product is more expensive than the competitor selling the standard product, and the consumer doesn't see the added value in your product, they'll likely choose the cheaper option. 2. The offering's perceived value can decline. As consumers become savvier and technology and products advance, the differentiation of your product might no longer provide value to customers. You should consider how long your differentiation strategy will last and if it will need to be modified at a later date. 3. It can strain resources. Pursuing a differentiation strategy means a lot of time, energy, and resources will be spent to develop a product that sets itself apart from the competition. This can put a burden on research and development teams, product manufacturers, and even your profit margins. These effects are felt more by smaller businesses that have few employees and limited resources.  Summary Why is product differentiation important? Product differentiation is important because it allows different brands or companies to gain a competitive advantage in the market. If differentiation were unachievable, the bigger companies with economies of scale would always dominate the market because they can undercut smaller producers in terms of price. Product differentiation is also a way to control costs for the consumer by maintaining a competitive market. YouTube video link for Product Differentiation https://youtu.be/IgXz94e1X3M  Assignment II for Product Comparison Dear Students, pl select your choice of product and do a thorough product comparison and submit in the GCR Examples: 1. Toyota Vs Maruti 2. Pizza hut Vs Dominos 3. Hp Vs Dell 4. LG Vs Samsung 5. Mysore Sandal Vs Dove 6. Colgate Vs Vicco 7. Amazon Vs Flipkart, etc.,