Differentiation

Differentiation

Definition: Result of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors.

A business can differentiate its products and services based on a range if different factors such as price, quality, usability, convenience and service.

Product differentiation is extremely important to running any kind of business. This is due to economic principals that have been demonstrated time and time again in nearly every market place. If the public perceives no difference between two competing products, then the only possible means of competition is through pricing.

In a situation such as this, products are viewed by customers as very easy substitutes for one another. If one product is more expensive than the other, the customer will simply purchase the cheaper product. She does this because she views no difference between them.

To compete, the company with the higher price will lower its price to the same level as the competition. The other competitors have no choice but to lower their prices as well. They have to or they will lose their business. Eventually, this leads to a situation in which the prices are lowered to the point where no business in the market can make a profit off of that product.

Situations such as these present themselves in markets where products are relatively similar. For example, people generally don’t consider one brand of peas inherently superior to another. Due to this fact, they are likely to just purchase the cheapest brand.

The answer to this problem based on economic principals is to make your product seem different from the competition. However, actual physical alteration of the product is not always necessary. For example, with the previous pea example, there seems to be little space for altering the actual product. A pea will generally be the same no matter where or how it’s harvested.

An emerging trend is for businesses to differentiate based on environmental sustainability. Businesses can choose to either offer a complimentary range of environmentally sustainable options alongside their existing products, or choose to make their entire operation more sustainable from the ground up.

The main driver behind environmental sustainability differentiation is changing consumer expectations. Consumers are become more aware and more interested in limiting their negative impact on the environment. Consumers are also openly expressing their disappointment in businesses that focus on profit making at the expense of a healthy environment. Businesses have identified that an opportunity exists to differentiate themselves based on their commitment to environmental sustainability.

However, before a business totally changes their proven business model to a new, sustainability focused approach, they need to consider the potential risks and costs involved.

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