Question

The preservation of a “monopolistically competitive” firm’s ability exercise a degree of control over the price and thus its ability to preserve economic profits over the long run is primarily achieved through the concept called “Product Differentiation”.

A.(5 Points) Provide the definition used in this module for “Product Differentiation”.

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B. (5 Points) List and briefly describe the four (4) properties/approaches utilized in establishing and maintaining “Product Differentiation”.

Answer 1

A.

Product differentiation is a process used by businesses to distinguish a product or service from other similar ones available in the market.The goal is to help businesses develop a competitive advantage and define compelling unique selling propositions (USPs) that set their product apart from competitors. Organizations with multiple products in their portfolio may use differentiation to separate their various products from one another and prevent cannibalization.We usually think first of marketing because it’s marketing who focuses on product positioning and is often the first touchpoint for a customer or prospect. However, differentiation is more than just how marketing positions the product—every single customer touchpoint is an opportunity for differentiation.

B. the four (4) properties/approaches utilized in establishing and maintaining “Product Differentiation” are following

Differentiation is a strategy that businesses often use to set themselves apart from competitors. In a differentiation strategy, low cost is only one of many possible factors that may set aside a business from others. Business that differentiate themselves typically look for one or more marketable attributes that they have that can set them apart from their competitors.

Horizontal Differentiation :- Horizontal differentiation refers to any type of differentiation that is not associated with the product’s quality or price point. These products offer the same thing at the same price point. When making decisions regarding horizontally differentiated products, it often boils down to the customer’s personal preference.E.g - Pepsi vs Coca Cola

vertically differentiated products are extremely dependent on price. With vertically differentiated products, the price points and marks of quality are different. And, there is a general understanding that if all the options were the same price, there would be a clear winner for “the best. E.g -Branded products vs. generics

Mixed differentiation refers to differentiation based on a combination of factors. Often, this type of differentiation gets lumped in with horizontal differentiation. E.g - Vehicles of the same class and similar price points from two different manufacturers.