Difference between Product Differentiation and Price Discrimination

Product Differentiation

Product differentiation helps to distinguish one company’s products from its competitors. Product differentiation seeks to distinguish a product from a competing product to make it more attractive to a specific target market. There are mainly three types of product differentiation which are classified as horizontal, vertical, and simple.

  • Horizontal product differentiation – It distinguishes a product based on the characteristic of the product, but the consumers cannot distinguish which product has higher quality.
  • Vertical product differentiation – It is based on a single characteristic of any product, but the consumers can distinguish the product with a higher quality.
  • Simple product differentiation – It is based on distinguishing any product by its characteristics.

Price Discrimination

Price discrimination is defined as a strategy that is used to distinguish the prices for the same goods or services. Price discrimination occurs when similar products are sold at different prices by the same company. Unlike product differentiation, the idea behind price discrimination is to charge customers different prices for the same product. It does not focus on distinguishing its product from others.

For example, if a company offers a student discount on their product, it is considered as price discrimination. Generally, the students may not have enough money to buy products and are thus more sensitive to the price changes. So the businesses then try to attract the target market by making their items cheaper.

Difference between Product Differentiation and Price Discrimination

Both product differentiation and price discrimination find use in subjects like marketing and economics. Companies are constantly using these methods to improve the saleability of their offerings. However, it is important to note that there are some major points of difference between product differentiation and price discrimination, and we need to discuss them properly to get a better understanding of this topic:

Product Differentiation

Price Discrimination

Definition

Product differentiation helps to distinguish one company’s products from its competitors.

Price discrimination helps to distinguish prices for the same product.

Focus

Product differentiation focuses on distinguishing its product from others.

Price discrimination aims to charge different prices to different customers for the same product.

Usage

Product differentiation is useful across all sectors and industries.

Price Discrimination is useful across some sectors and industries.

Conclusion

Both product differentiation and price discrimination are important tools for any market. They help the companies to make their product or service much more attractive to customers, and it also helps them to improve their sales. But these strategies must be used judiciously to have the relevant effect in the long run.

Frequently Asked Questions

What are the main advantages of product differentiation?

The main advantages of product differentiation are as follows:

  • Grabs your prospect’s attention – Product differentiation can help you stand out in the market by focusing on the features that set your product apart from your competitive set.
  • Establishes the superior value of your product – A messaging strategy that focuses on a product’s unique features helps to create a positive perception of your product.
  • Takes the focus off the price – Clarity about how a product stands apart from its competitors enables a company to avoid competing solely on its price. Highlighting the product’s uniqueness can deliver better value and help to justify the cost.
  • Creates brand loyalty – Differentiating a product helps to drill down to a specific problem that your product addresses and the method by which it solves that problem. Articulating and delivering on the promise helps to create fans who are loyal and recommend the product to others.

What are the main disadvantages of product differentiation?

The major disadvantages of product differentiation are as follows:

  • Copycats: The point of difference should be an attribute that is proprietary. It should be something that can help you consistently innovate to stay a step ahead of your competitor.
  • Price undercutters: Competitors will always be willing to charge less and steal your customers. With globalisation playing a role in how the markets develop, the competitors will find a method that will allow them to undercut your prices. Thus it is critically important to differentiate on things other than price.
  • Customer demands or expectations: Even with complex products, the customers try to find the next big thing. It is human nature to want the latest object, which is why it becomes important to avoid differentiation based on products that will become obsolete.

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