Differentiation is the process of distinguishing an organization’s products from those of other firms in the same industry. For example, branding can be used to enable customers to easily identify and distinguish a product from its rivals. Without effective product differentiation, customers do not gain a perception that the organization’s product is different, distinctive or unique. Having clear differentiation helps to add value, thereby improving the business’s chances of success.

Businesses can differentiate themselves and their products by using any feature or aspect of the marketing mix. For example:

• Product – There are lots of ways that businesses use to differentiate their products, e.g. creating innovative products (such as Apple products), adding new special features (such as used by car manufacturers), or focusing on quality (such as Tiffany & Co. jewellery).

• Price – Different pricing strategies can be used to appeal to different market segments and target markets. For example, cinemas and restaurants often charge lower prices on Tuesdays and other off-peak periods. Some businesses choose to use very low prices as part of their differentiation strategy (e.g., supermarkets such as Walmart and low-budget airlines such as Ryanair) or a high-price strategy (such as Porsche cars and Ray-Ban sunglasses).

• Place – Businesses can broaden their distribution channels to attract more customers, such as Coca-Cola’s vast placement strategy (how many places can you think of where Coca-Cola is sold?) Increasingly, businesses are using the Internet as a distribution channel to promote and sell their products.

• Promotion – Differentiating products by using intellectual property rights such as logos, trademarks, slogans, and brands. Businesses can also use packaging to make their products stand out, such as the McDonald's Happy Meal box.

 Advantages of differentiation

• Differentiation enables businesses to charge higher prices due to the distinctive features or aspects of the products they are selling.

• Differentiation creates brand awareness and can help to create customer loyalty.

• Successful differentiation improves product placement (distribution channels) as more distributors (such as wholesalers and retailers) choose to sell the product.

• It adds value to a good or service, creating better value for money from the perspective of customers. This can help a business to increase sales and establish customer loyalty.

• It can help to hinder or prevent new entrants in the market, thereby maintaining the business’s market share as customers remain loyal to their preferred brands.

• Ultimately, successful differentiation creates competitive advantages for a business, such as market leadership and dominance. Hence, successful differentiation can give the firm strategic advantages.

 Disadvantages of differentiation

• Differentiation, especially the ability to create a unique selling point, can be highly expensive. Furthermore, differentiation strategies are often easily copied by rivals businesses (see task below).

• Similarly, it is cheaper for firms to make mass-produced goods for mass market, rather than to cater for specialised (differentiated) niche markets. This is because businesses can benefit from economies of scale from mass production, but are less likely to be able to gain cost-saving benefits by using a differentiation strategy.

• Differentiation can create unnecessary or wasteful competition, such as excessive packaging and marketing clutter (such as spam advertising).

• As differentiation can prevent new entrants from succeeding in the market, it can be anti-competitive. This limits the choice and price competition for customers in the market.

Key concept - Change

Discuss how marketing strategies change in response to changing and evolving customer preferences.

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Possible points for discussion could include:

• Consumer tastes change over time. Successful businesses change their marketing strategies in response to changes in customer preferences.
• The growing popularity of mobile devices and Internet technologies mean that an increasing number of organizations now rely on e-commerce and social media marketing (see Unit 4.5) as part of their overall marketing strategy.
• Marketing objectives and strategies may need to change as a good or service enters different phases of its product life cycle (see Unit 4.5), e.g., extension strategies might prevent sales from declining when the industry becomes saturated.
• The growing trend and social expectations of firms behaving in a socially responsible way directly impacts on their marketing strategies. Indeed, having a reputation for being socially responsible can improve an organization’s competitiveness.
• International trade and globalization can have a huge impact on altering consumer demand. Multinational companies need to adapt their strategies for international marketing to suit different local preferences and cultural norms in overseas markets.

 ATL Activity 3 (Research skills) - Packaging as a differentiation strategy

Explain why packaging can be an important aspect of an organization's marketing strategy. Use the Internet (and any other appropriate sources) to find real-world examples of how businesses use packaging as part of their differentiation strategy.

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Possible examples could include:

• Packaging is an important aspect of product differentiation, e.g., product packaging can contain the brand name and logo.

• Similarly, packaging helps customers to identify and recognise the brand or product. Some products have a unique or distinct design to grab the attention of buyers, e.g., Toblerone chocolate bars, Tabasco sauce, Pringle’s potato chips, McDonald's Happy Meal boxes, and Coca-Cola’s glass bottle.

• Packaging helps to shape customers’ perception of a brand.

• Packaging has a protection of the product (physical, hygiene, and transportation protection).

• It plays an important role in promoting a product, e.g., visual appeal such as the texture and quality of the packaging, which can alter customers’ perception of the product or brand.

• Aside from the value to a business, there are legal requirements for a product's packaging, e.g., nutritional information.