Business, Legal & Accounting Glossary

Definition: Differentiation

Full Definition of Differentiation

Product differentiation can be described as a marketing process that displays the deviation between products. This is done to make products more appealing to a particular target market. Differentiated product makes a competitive advantage for the seller as customers perceive the product as superior to its peers. Product differentiation also makes a product unique.

Product differentiation can be accomplished in a number of ways. It may range from a simple redesign of packaging to substantial value additions. The popular methods are:

  • Distinctive design or functional features of a specific product
  • Sales promotion activities like advertising and marketing activity in product retail points
  • Variation in pricing
  • Superior quality of product
  • Availability of product that differs due to location and timing

Product differentiation results in some unexpected difficulties in categorization. The uniqueness of differentiated product makes it difficult to slot into any product category. Positive effects include the fact that the product moves from competitive pricing to factors unrelated to product costs like product characteristics and distribution.

Pricing Power

It refers to a change in product price of a particular company that varies according to the quantity of the product demanded. Pricing power is affected by the economics of price elasticity of demand.

Competitive Advantage

It is the advantage that a particular company possess over its competitors. Competitive advantage enables a company to achieve greater sales and profit margins than its competitor companies.

Competitive advantage is of two types: differential advantage and comparative advantage. Comparative advantage is cost advantage. Cost advantage is the company’s edge to manufacture goods at a lower cost than its competitors, which in turn gives company the power of lower product pricing. A differential advantage is the edge when a company’s service or product is regarded as better than its competitors.

Cite Term

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Modern Language Association (MLA):
Differentiation. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. September 26, 2021 https://payrollheaven.com/define/differentiation/.
Chicago Manual of Style (CMS):
Differentiation. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/differentiation/ (accessed: September 26, 2021).
American Psychological Association (APA):
Differentiation. PayrollHeaven.com. Retrieved September 26, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/differentiation/

Definition Sources

Definitions for Differentiation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 3 Views.