Product Differentiation

Product differentiation definition

Product differentiation is the general process businesses use to set their products and services apart from similar competitors. The main purpose of product differentiation is to increase sales and brand recognition.

Products can be differentiated from competitors in many different ways. Common techniques for product differentiation include:

  • Promotions
  • Rebranding 
  • Addition of new features 
  • Endorsements
  • Design changes

Each of these factors can help tip the balance in the consumer’s decision making process.

Why use product differentiation?

Differentiating a product can help make it more attractive to consumers. This could be achieved with new design features or better value for money. New features are especially useful for making a product stand out when it occupies a saturated marketplace with many similar competitors. For example, a customer may walk into a store and see three products with exactly the same function or purpose. In this case, factors like price or design will help steer them to one product in particular.

Many forms of product differentiation are subjective. Things like design features or brand messaging can be interpreted differently by different customers. The impact of differentiation via monetary cost, however, is easier to predict and measure.

Product differentiation with promotions

You can use promotions to alter the financial value of your products in many different ways. Simple promotions, like discounts, only alter the price of a product. But, depending on the competitors you’re up against, and the category of product you’re selling, this may actually work against you. An unexplained low price will reduce the value of the product in the eye of the customer, and may make them question its build quality.

More complex promotional techniques alter the value of a product in different ways. For example, you could offer one product for full price, with 20% off another product as part of the deal. This doesn’t reduce the perceived value of the first product, and it gives customers the chance to get a second product for less.

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