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Product differentiation

Product differentiation means that at any time a wide range of products will be offered to the consumer. The differences will find expression in the types, types, styles, brands, degrees of quality of this product, packaging forms, which ensures the satisfaction of a variety of consumer tastes. Product differentiation can be manifested in the production of substitute products and alternative products, such as sugar and its substitutes, tea and its coffee alternative.

Product differentiation and the presence of competitors in the industry stimulate an increase in the quality of a given product and giving it certain unified characteristics that may not be available for products of another company. This can strengthen the market power of some manufacturers.

But in any case, the strength of the market power of one firm will be weakened by the presence of producers of similar goods and significant freedom of entry into the industry. Therefore, in the industry of monopolistic competition, economic rivalry focuses not only on price, but also on non-price factors such as product quality, advertising, sales conditions and various forms of sales promotion. In this case, the types of product differentiation take the form of non-price competition. All types of business or industry operating in conditions of imperfect competition follow certain types of competitive strategies.

There are three basic types of competitive strategies: price leadership, differentiation, and focusing (Table 9).

Table 9 -

basic characteristics of basic strategies



The price leader (a manufacturer capable of keeping product prices below market) chooses a low level of product differentiation and ignores market segmentation. It works for the average consumer, providing a reduced price. The price leader is protected from future competitors by its price advantage. When replacement products enter the market, the price leader can lower the price and maintain market share. The advantage of a price leader is the presence of entry barriers, as other companies are unable to enter the industry using leader prices.
Thus, the price leader is relatively safe as long as he maintains a price advantage. A fundamental danger for him is finding competitors ways to reduce their costs (for example, when changing technology).

The goal of the differentiation strategy is to achieve a competitive advantage by creating products or services that are perceived by consumers as unique. At the same time, companies can use a higher (premium) price. The advantage of the differentiation strategy is the safety of the company from competitors as long as consumers maintain a steady loyalty to its products. This provides her with a competitive edge. Differentiation and wide customer loyalty create barriers to entry for other companies that need to perform competitive developments. Finally, substitute products can only pose a threat if competitors are able to produce products that also satisfy consumers to the same extent and are capable of breaking stable loyalty to a differentiated company.

The main problem of such a company remains to maintain uniqueness in the eyes of consumers, especially in conditions of imitation and copying. The threat may also arise due to changes in the needs and tastes of consumers.

Changes in production technology make the difference between price leadership and differentiation strategies less noticeable. Firms can implement differentiation policies at low costs.

Given this, some firms are trying to combine the advantages of price leadership and differentiation. They can set a premium price for their products compared to the price of a net price leader, but which will be lower than that of a pure differentiator, which can provide them with greater profits than companies that use clean basic strategies.

With a focusing strategy, a limited group of segments is selected. Having chosen a segment, the company uses either differentiation or a low-price approach.

If companies have not clearly defined their strategy, then, as a rule, they get below average results and suffer from increased competition.
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Product differentiation

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    Product differentiation. Non-price
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