Directorate of distance education

Product Differentiation
Significance
Offered under different brands by competing firms, products 
fulfilling the same need typically do not have identical features. 
The 
differentiation of goods along key features and minor details
is an 
important strategy for firms to defend their price from levelling down to 
the bottom part of the price spectrum. 
Within firms, product differentiation is the way multi-product 
firms build their own supplied products’ range. At market level, differ-
entiation is the way through which the quality of goods is improved over 
time thanks to innovation. Launching new goods with entirely new per-
formances is a radical change, often leading to changes in market shares 
and industry structures. In an 
evolutionary
sense, differentiation is a 
strategy to 
adapt to a moving environment
and its social groups.
Three Elements of Product Differentiation
Being unique in the marketplace provides distinct advantages. In 
fact, if you do not provide something unique, your business will be severely 
challenged. So, what are the three elements of product differentiation?
1. Convenience (or timing)
2. Customization.
3. Cost Recovery
Convenience
People don’t want to wait these days. In order to differentiate 
your product from your competitors’, consider how you can deliver your 
goods and services precisely when they are needed. Often, this means 
being faster than your competitor — but not always! If I order drapes as 
part of a renovation project, for example, I don’t necessarily want them 
immediately. I may not need them for six weeks. If I get them too soon, 
they might get damaged waiting to be hung.

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However, I do want them when the time is right for me. The 
company that can deliever what I need when I need it will certainly be 
better positioned to earn my continued business.
Customization
When I order those drapes, I don’t want just any old size or 
pattern. They need to fit perfectly to my windows, and I want them in the 
style and color pattern that goes best in my house. Customization is an 
element of product differentiation that cannot be over-emphasized. The 
more you know about your customers’ needs — and the better you do in 
serving those needs to your customers’ satisfaction — the stronger your 
competitive position will be in the market.
Service-based businesses are particularly capable of customization.
Even with a product-based business, there are still techniques 
available for individualizing your firm, such as customizing your billings, 
or special packaging for your best customers. Product customization 
is a rapidly growing field for clothing, footwear (ex. sports shoes in 
school colors), backpacks in the color you want, cosmetics, automobiles, 
motorcycles, etc.