Differentiation

Finding/Establishing superiority over competitors on some benefits/ attributes relevant to the customerFinding/Establishing superiority over competitors on some benefits/ attributes relevant to the customer.  What unique benefit does the product has?  How am I better vs. competitors on something the customer cares about

o   Features (Tangibles –engineering, technology-)

o   Benefits (Intangible)

see our discussion on differentiation

process of distinguishing the differences of a product or offering from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as one's own product offerings.

Differentiation is a source of competitive advantage. Although research in a niche market may result in changing your product in order to improve differentiation, the changes themselves are not differentiation. Marketing or product differentiation is the process of describing the differences between products or services, or the resulting list of differences. This is done in order to demonstrate the unique aspects of your product and create a sense of value. Marketing textbooks are firm on the point that any differentiation must be valued by buyers. The term unique selling proposition refers to advertising to communicate a product's differentiation

Differentiation primarily impacts 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).  In economics, successful product differentiation leads to monopolistic competition and is inconsistent with the conditions for perfect competition

The brand differences are usually minor; they can be merely a difference in packaging or an advertising theme. The physical product need not change, but it could. Differentiation is due to buyers perceiving a difference, hence causes of differentiation may be functional aspects of the product or service, how it is distributed and marketed, or who buys it. 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 objective of differentiation is to develop a position that potential customers see as unique.

Most people would say that the implication of differentiation is the possibility of charging a price premium; however, this is a gross simplification. If customers value the firm's offer, they will be less sensitive to aspects of competing offers; price may not be one of these aspects. Differentiation makes customers in a given segment have a lower sensitivity to other features (non-price) of the product

Technology enables Differentiation:

The most important aspect is the ability of the new technology to differentiate and customize. On the internet, each packet is identified as to sender and receiver. Which means that one can identify users, and uses. And if we can identify, we can differentiate.

To give a close analogy: In the past, toll roads could charge motorists only in a very undifferentiated way. But now, with automated billing and stored payment systems, we can charge different prices by time of day, by frequency of use, by the characteristics of the driver, by the characteristics of the car, and by the proximity of a driver’s residence to public transportation alternatives. In sum, we possess a much finer tool than before to stimulate and to depress demand for transportation, and to do so at a lower cost due to the ability to pin-point incentives.

The industrial age was the age of massification. Mass production. Mass consumption. Mass media. Mass advertising. But not any more. All around, we see customisation and individualization. Macroeconomic activity by government will eventually follow, and become a sub-aggregated ‘mezzo’ economic policy. Economists, technologists, and policy analysts should work to develop these tools

source: Prof. Eli Noam, Columbia Institute for Tele-Information