A 2.

5 Marketing Management

Unit 3. Market Segmentation

3.1. Concept, Bases for segmentation

3.2. Targeting Market Segment
3.3. Concept of Product Positioning and Differentiation

3.1. Concept, Bases for segmentation

Concept:

The process of dividing the total heterogeneous market for a product or service into sub-
markets or segments, each of them being homogeneous in all significant aspects, is known
as market segmentation. According to William Station, market segmentation is, “the
process of taking the total heterogeneous market for a product or service and dividing it
into several markets or segments, each of which tends to be homogeneous in all
significant respects.” For example, the total market for ready-made garments may be
divided into segments like kids, teenagers, ladies and gents.

Market segmentation is based on the fact that a market is composed of different buyers
who respond differently to the same marketing programme. Therefore, all the potential
customers are grouped into sub-groups so that each sub-group is different from others
but all customers in a particular sub-group have by and large similar characteristics.
Market segmentation is customer-oriented philosophy. It is a technique of recognising
effectively the differences among customers. It is well-tested system for guiding
marketing strategy. It enables a bank (or any other organisation) to offer specialised
services and need-based (user- oriented) schemes for optimum deployment of funds.
The basic aim of market segmentation is to identify the varying and specific needs of
different types of customers so that appropriate mix of products/services may be
designed and offered to satisfy different types of customers. In this age of intense
competition for the mass market, individual sellers can prosper by serving specific
market segments in a creative manner.

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The process of market segmentation involves the following steps:

(i) Identify the total market (those who buy or may be induced to buy the product or
service under consideration).
(ii)Divide the total market into its major sub-markets or segments.
(iii) Estimate the sales potential and profit potential for each sub-market.
(iv) Determine the unique characteristics and requirements of each sub-market.
(v) Select one or more segments on which the firm will focus on serving.

Definition:

A market consists of all such people who have the willingness to buy and the capacity to
buy a product or service. The market for a product or service is generally heterogeneous
father than the homogeneous mass of customers.
Each potential buyer has individual needs and desires, and specific circumstances that
influence his/her purchasing and consumption behaviour. Its firm attempts to cater to
the local market, its limited resources might be frittered away. At the same time, it would
be highly inefficient to tailor the marketing programme to each specific customer. The
firm can develop a marketing programme for each relatively homogeneous and
meaningful segment of the total market.
Some firms attempt to appeal to the total market. This practice is known as
“Undifferentiated Marketing” or the “Total Market Approach”. For example, producers of
petrol usually attempt to serve the total market. This approach offers economics of scale
due to product standardisation and large sales volume.
When one product can serve most or all of the market, this approach is appropriate. When
one homogeneous product will not satisfy the total market, segmentation is appropriate.
Developing a different offering for each segment of the total market, is called
“Differentiated Marketing”. An initial policy decision in marketing is whether or not to
practise market segmentation.

Rajan Saxena defines, “Segmentation as the process of dividing heterogeneous market

into homogeneors sub units.”

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As per S. J. Skinner, “Market segmentation is the process of dividing a total market into
groups of consumers who have relatively similar product needs.”

Thus, on the basis of the above definitions, it can be concluded that segmentation is to
divide a market composed of consumers with diverse characteristics and behaviors into
homogeneous segments that contain persons who will all respond similarly to a firm’s
marketing effort.

The concept of market segment is based on the fact that the markets of commodities are
not homogenous but they are heterogeneous. Market represents a group of customers
having common characteristics but two customers are never common in their nature,
habits, hobbies, income and purchasing techniques. They differ in their behavior and
buying decisions. On the basis of these characteristics, customers having similar qualities
are grouped in segments.

According to Philip Kotler, “Market segmentation is sub-dividing a market into

distinct and homogeneous subgroups of customers, where any group can
conceivably be selected as a target market to be met with distinct marketing mix”.

According to William J. Stanton, “Market segmentation consists of taking the total

heterogeneous market for a product and dividing it into several sub-market or segments,
each of which tends to be homogeneous in full significant aspects”.

According to R. S. Davar, “Grouping of buyers or segmenting the market is described as

market Segmentation.”

The main aim of market segmentation is to prepare separate programmes or strategies

to all segments so that maximum satisfaction to consumers of different segments may be
provided. In the words of Philip Kotler, “the purpose of market segmentation is to
determine difference among them or marketing to them.”

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Bases for segmentation:

Some of the major bases for market segmentation are as follows: 1. Geographic
Segmentation 2. Demographic Segmentation 3. Psychographic Segmentation 4.
Behavioristic Segmentation 5. Volume Segmentation 6. Product-space Segmentation 7.
Benefit Segmentation.
A large number of variables are used to segment a consumer market.

The most common bases for segmenting markets are as follows:

Traditional:
Geographic, Demographic
Modern:
Psychographic, Behaviouristic

1. Geographic Segmentation:
The starting point of all market segmentation is the geographic location of customers. It
helps the firm in planning the marketing offer. The common method is to classify
according to rural and urban, metro or non-metro markets. There are also other
classifications like district and block markets. We all know that here was the perception
that the rural markets are different from urban markets and naturally the product
promotion, pricing and distribution were accordingly designed to meet those markets.
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But now with the development of technology and the advent of various modes of
communication like TV, the customers in the rural areas are much exposed and are more
aware of the availability market. Today the rural customer buys the same branded
product which is purchased by urban customer.

Geographic location is one of the simplest methods of segmenting the market. People
living in one region of the country have purchasing and consuming habit which differs
from those living in other regions. For example, life style products sell very well in metro
cities, e.g., Mumbai, Delhi, Kolkata and Chennai but do not sell in small towns. Banking
needs of people in rural areas differ from those of urban areas. Even within a city, a bank
branch located in the northern part of the city may attract more clients than a branch
located in eastern part of the city.

2. Demographic Segmentation:
Demographic variables such as age, occupation, education, sex and income are commonly
used for segmenting markets.
Demographic Characteristics:
Factors like age, gender, income, occupation, family size, education; marital status is used
singly or in combination to segment the market.
i. Age:
Age is one of the most important factors for segmenting the market. The market the
producer should know for what age group his product could be most suited so that he can
plan his pricing policy, advertisement policy, marketing policy and strategy accordingly.
For example, Cloth market or Garment market may be segmented on this basis of age as
–
Children b/w the age group of 3-12yrs
Children b/w the age group of 13-15yrs
Teenagers’ b/w the age group of 16-20yrs
Adults’ b/w the age group of 21-30yrs and so on

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ii. Income:
The manufacturer should also bear in mind while preparing his marketing policy, the
income of the prospective buyers of his product. Consumer’s needs, behaviour,
persuasion etc. differ in different income groups. For example, people in high-income
group prefer quality of goods, design, fashion-oriented products, etc. hence they can be
motivated on these factors. People in low-income group attract towards low price.
iii. Gender:
Marketers may also be divided on the basis of gender i.e., male and female. Some products
are exclusively produced for women while some others are for men. For example, Lip
Stick is meant for a woman and on the other hand Shaving cream is only meant for men.
iv. Occupation:
Occupation is also another variable in segmenting the market. An individual’s
employment does definitely affect the consumption; different categories of segments can
be identified like doctors, consultants, entrepreneurs, lecturers etc.
v. Education:
Education of the consumer also affects the preference and taste. The choice of literate
person would obviously differ from that of an illiterate, as a literate he would be having a
lot of exposure to the outside worlds where as an illiterate although exist the same
environment would lack the ability to understand, when we look at all these aspects it is
easy to indicate that education plays an important role in the life of an individual as it
creates awareness about the environment, the availability of different products in the
market and awareness about their rights.
Accordingly based on education, the Indian Market can be segmented as illiterates,
literates-high school, college and university educated.
vi. Marital Status:
Marital status is another demographics variable used. The behavioral of single and
married people differs. Married people are more conservative than unmarried people.
vii. Family Size and Structure:
Markets may also be segmented on the basis of size of family Refrigerators and cookers
are produced in different sizes to suit the needs of families of different sizes.

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Young single, young married no children, young married youngest child under six, young
married youngest child over six, older married with children, older married no children
under eighteen, older single, etc.

3. Psychographic Segmentation:
No two consumers act in the same manner though they two may be of the same age, from
the same profession, same education and have same income. Each of the customers may
have different attitudes because of personality and life-style differences. Markets are
using psychographics variables to segment their market.
Under this method consumers are classified into market segments on the basis of their
psychological make-up, i.e., personality, attitude and lifestyle. According to attitude
towards life, people may be classified as traditionalists, achievers, etc.

For example, Citibank, Diners card, Titan Watch, Savvy has used Psychographics variables
to segment its market and distance itself from all others, including Femina. Savvy Women
is identified as the highly liberated independent strong women, who have a definite plan
in the society and to whom career would be extremely important.

Rogers has identified five groups of consumer personalities according to the way
they adopt new products:
(а) Innovators:
These are cosmopolitan people who are eager to try new ideas. They are highly
venturesome and willing to assume the risk of an occasional bad experience with a new
product.
(b) Early Adopters:
These are influential people with whom the average person checks out an innovation.
(c) Early Majority:
This group tends to deliberate before adopting a new product. Its members are important
in legitimising an innovation but they are seldom leaders.
(d) Late Majority:
This group is cautious and adopts new ideas after an innovation has received public
confidence.

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(e) Laggards:
These are past-oriented people. They are suspicious of change and innovations. By the
time they adopt a product, it may already have been replaced by a new one.
Understanding of psychographic of consumers enables marketers to better select
potential markets and match the product image with the type of consumer using it. For
example, women making heavy use of bank credit cards are said to lead an active lifestyle
and are concerned with their appearance. They tend to be liberated and are willing to try
new things.
Psychographic classification may, however, be an oversimplification of consumer
personalities and purchase behaviour. So many factors influence consumers that an early
adopter of one product might well be a laggard for some other product and vice versa.

4. Behavioristic Segmentation:
Buyers are at different stages of readiness. People may be unaware, people who are aware
but are not interested, people who are interested and desires to buy and those who will
buy the product. The relative proportion of buyers at different stages will affect the
marketer’s tasks.

In this method consumers are classified into market segments not the basis of their
knowledge, attitude and use of actual products or product attributes.
Any of the following variables might be used for this purpose:
(а) Purchase Occasion:
Buyers may be differentiated on the basis of when they use a product or service. For
example, air travellers might fly for business or vacation. Therefore, one airline might
promote itself as a business flyer while another might target the tourists.
(b) Benefits Sought:
The major benefit sought in a product is used as the basis of classify consumers. High
quality, low price, good taste, speed, sex appeal are examples of benefits. For example,
some air travellers prefer economy class (low price), while others seek executive class
(status and comfort).

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(c) User Status:

Potential buyers may be classified as regular users, occasional users and non-users.
Marketers can develop new products or new uses of old products by targeting one or
another of these groups.

5. Volume Segmentation:
Consumers are classified light, medium and heavy users of a product. In some cases, 80
per cent of the product may be sold to only 20 per cent of the group. Marketers can decide
product features and advertising strategies by finding common characteristics among
heavy users. For example, airlines having ‘Frequent Flyer’ are using user rate as the bas is
of market segmentation. Generally, marketers are interested in the heavy user group.
But marketers should pay attention to all the user groups because they represent
different opportunities. The non-users may consist of two types of people— those who
do not use the product and those who might use it. Some may change over time from a
non-user to a user.
Those who do not use due to ignorance may be provided extensive information.
Repetitive advertising may be used to overcome inertia or psychological resis tance. In
this way non-users can gradually be converted into users.

6. Product-space Segmentation:
Here the buyers are asked to compare the existing brands according to their perceived
similarity and in relation to their ideal brands. First, the analyst infers the latent
attributes that consumers are using to perceive the brand. Then buyers are classified into
groups each having a distinct ideal brand in mind. The distinctive characteristics of each
group are ascertained.

7. Benefit Segmentation:
Consumer behaviour depends more on the benefit sought in product/service than on
demographic factors. Each market segment is identified by the major benefits it is
seeking. Most buyers seek as many benefits as possible. However, the relative importance
attached to individual benefits differs from one group to another. For example, some
consumers of toothpaste give greater importance to freshness while other prefer taste or
brightness of teeth.
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Research studies on benefit segmentation reveal that it is easier to tak e advantage of

existing segment, then to create new segments. As no brand can appeal to all consumers,
a marketer who wants to cover the market fully must offer multiple brands.

The following benefit segments have been identified:

(а) The Status Seeker:
This group comprises buyers who are very much concerned with the prestige of the
brand.
(b) The Swinger:
This group tries to be modern and up-to-date in all of its activities.
(c) The Conservative:
This group prefers popular brands and large successful companies.
(d) The Rational Man:
This group looks for benefits such as economy, value, durability and other logical factors.
(e) The Inner Directed Man:
This group is concerned with self-concept, e.g., sense of homour, independence, honesty,
etc.
(f) The Hedonist (Degraded):
This group is concerned mainly with sensory benefits.
Marketing experts suggest that benefit segmentation has the greatest number of practical
implications than any other method of segmentation.

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3.2. Targeting Market Segment

The second step is targeting, in which the company selects the segment of customers they
will focus on. Companies will determine this base on the attractiveness of the segment.
Attractiveness depends on the size, profitability, intensity of competition, and ability of
the firm to serve the customers in the segment.

The list below refers to what’s needed to evaluate the potential and commercial
attractiveness of each segment.
• Criteria size: The market must be large enough to justify segmenting. If the
market is small, it may make it smaller.
• Difference: Measurable differences must exist between segments.
• Money: Anticipated profits must exceed the costs of additional marketing plans
and other changes.
• Accessible: Each segment must be accessible to your team and the segment must
be able to receive your marketing messages
• Focus on different benefits: Different segments must need different benefits.

Targeting Market Segments:

The firm never has sufficient resources/capabilities to address all segments in a market;
it must decide where to place efforts. Some segments receive greater effort/resources;
some segments receive little or none. Effective targeting better addresses customer
needs, minimizes competition.
The firm should implement the Principle of Selectivity and Concentration.
Carefully choose targets for effort.
Concentrate resources on those targets.
Example- International document and package delivery firm DHL used successive
approaches in targeting three customer need segments:
i. Ad hoc — small irregular shippers/occasional buyers.
ii. Regular — high-volume shippers not requiring supply-chain solutions.
iii. Advantage — shippers requiring a supply-chain solution.
The Advantage segment was attractive- Required DHL supply-chain solutions; offered
high revenue/ profit potential; good partnership possibilities. DHL selected 10 industry
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segments where it could offer industry-specific knowledge, solutions. DHL focused effort
on specific firms in those industries.
Multifactor Matrix Approach to Targeting (Strategic Position Analysis):
This approach helps the firm decide which market segments to target.

For each candidate segment, the firm must answer two questions:
i. How attractive is this segment?
ii. Does the firm have business strengths to win in this segment?

Using the market attractiveness/business strengths framework requires careful

attention to two sets of criteria:
i. Market-Segment Attractiveness:
Factors that make market segments attractive differ from firm to firm. For an individual
business, factors chosen should remain constant over the planning horizon, but may
differ from business to business.
ii. Business Strengths:
What any competitor would need to be successful in the segment. Business strengths
required to win differ from market segment to market segment. The market-segment-
attractiveness/business- strengths analysis is a useful tool to create a one-time snapshot.
Both market segments and firm strengths evolve; hence, the firm should update
periodically.

3.3. Concept of Product Positioning and Differentiation

The final step of STP customer segmentation models, P, deals with positioning.
Positioning is concerned with the exact messages you put out and how you transmit those
messages to give your target segments a reason to buy.

Positioning is where the rubber hits the road. Specifically, you're looking at the wants and
needs of each segment and creating a value proposition that clearly explains how your
product can meet those needs better than the products of your competitors.

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For example, suppose you run an adventure travel company. Through segmenting, you've
identified your target customer as unmarried, aged between 18 and 26, extroverted, pre-
career, budget-conscious and committed to responsible travel.

One approach might be to run a best-travel-photo competition on Instagram (because

your audience favors this channel) with the winner receiving an all-inclusive eco-travel
trip (because your audience loves getting free stuff). The hope is for the competition to
attract many thousands of entries, which represents a cost-effective way for the company
to build its mailing list of hyper-targeted customers.

One of the most important decisions which a marketer has to take in regard to his product
- the way he would like his product/brand to be perceived by the consumers. In order to be
successful, a marketer has to effectively communicate his product to his prospects. You have
to make sure that through your communication, your product is Seen, Heard, Believed and
Accepted by your consumers.

The art and science of making your message seen, heard, believed and accepted by
another human mind is what positioning is all about. When you apply this concept to your
communication messages for your brand/product you are actually positioning your
product/brand. Naturally if your message about your product/brand has been seen,
heard and accepted by your prospect, you have succeeded in building the desired
perceptions about your product in the mind of your prospect which has led him to accept
your product/brand.

Positioning is the act of fixing the exact locus of the product offer in the chosen market; it
decides how and around what distinctive features, the product offer has to be couched and
communicated to the consumers. While positioning its product, a firm analyses the
competitors’ positions, searches its own competitive advantages and then identifies the best
possible position for the product.

The significance of product positioning can be easily understood from David Ogilvy’s
words: "The results of your campaign depend less on how we write your advertising than
on how your product is positioned".

Positioning is a way of determining and achieving a place in the perceptions of the

consumer, relative to the competitors.

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"Positioning is the act of communicating company’s offer so that it occupies a distinct and
valued place in the customers’ mind"

1 "Positioning is not what you do to a product. But what you do to the mind of the
prospect, i.e. you position the product in the mind of the prospect."

2 Positioning is a powerful approach to communication. It is a concept which is as old as

product differentiation and market segmentation.

However, it was only in 1972, when two advertising practitioners Al Ries and Jack Trout
paid attention to this phenomenon of positioning. They tried to highlight its importance
in communication and attempted to give it a conceptual base. Therefore, researchers and
practitioners alike have probed into this subject to develop it further and give it a more
comprehensive conceptual base.

Product positioning has close linkage with product mix, product differentiation and
market segmentation. So, before we continue to build the concept of process of
positioning, it is important to understand the meaning of product mix, product
differentiation and market segmentation.

PRODUCT POSITIONING

The act of creating an image about a product or brand in the consumers mind is known
as positioning. In the words of Kotler, “Positioning is the act of designing the company’s
offer and image so that it occupies a distinct and valued place in the target consumers
minds.” In short, the process of creating an image for a product in the minds of targeted
customers is known as product positioning. Close-up tooth paste is looked upon by the
consumers more as a mouth wash than a teeth cleaner, while ‘pepsodent’ has created an
impression of germ killer in the consumer’s minds.

STEPS IN PRODUCT POSITIONING

1) Identifying potential competitive advantages: Consumers generally choose products

and services which give them greatest value. The key to winning and keeping customers
is to understand their needs and buying processes far better than the competitors do and
deliver more values.

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2) Identifying the competitors’ position: When the firm understands how its customers
view its brand relative to competitors, it must study how those same competitors position
themselves.

3) Choosing the right competitive advantages: It refers to an advantage over competitors

gained by offering consumers greater value either through lower price or by providing
more benefits.

4) Communicating the competitive advantage: The company should take specific steps to
advertise the competitive advantage it has chosen so that it can impress upon the minds
of consumers about the superiority claimed in respect of the product over its competing
brands.

5) Monitoring the positioning strategy: Markets are not stagnant. They keep on changing.
Consumer tastes shift and competitors react to those shifts. After a desired position is
developed, the marketer should continue to monitor its position through brand tracking
and monitoring.

ELEMENTS OF POSITIONING It is concerned with the following four elements.

1) The Product: Design, special feature, attributes, quality, package etc. of product create
its own image in the minds of the consumers. Material ingredient of a product is also
important in the process of product positioning.

2) The Company: The goodwill of a company lends an aura to its brand. For example, Tata,
Godrej, Bajaj etc have very good reputation in the market

3) The Competitors: Product image is build in consumers mind in relation to the

competing product. Thus a careful study of competition is required.

4) The Consumer: Ultimate aim of positioning policy is to create a place for the product
in consumers’ minds. Therefore, it becomes necessary to study the consumer behaviour
towards the product.

TECHNIQUES OF PRODUCT POSITIONING

Following technique are used in positioning a product in the market: 

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Positioning by Corporate Identity: The companies that have become a tried and trusted
household name. For example, Tata, Sonyetc. School of Distance Education Marketing
Management

 Positioning by Brand Endorsement: Marketers use the names of company’s powerful

brands for line extentions or while entering another product category. Lux, Surf, Dettol
etc.

 Positioning by Product Attributes and Benefits: It emphasize the special attributes and
benefits of the product. Close-up is positioned on fresh breath and cosmetics benefits.

 Positioning by use, Occasion and Time: It is to find an occasion or time of use and sit on
it. For example, Vicks vaporub is to be used for child’s cold at night.

 Positioning by Price and Quality: Company position its brand by emphasizing its price
and quality. Eg. Nirma detergent powder.

 Positioning by Product Category: Brand is perceived to be another product category.

Eg. Maruti positioned its van as omni, family car.

 Positioning by Product User: Positioning the product as an exclusive product for a

particular class of customers. Eg. Scooty as a two-wheeler for teenagers.

 Positioning by Competitor: An offensive positioning strategy and is often seen in cases

of comparative advertising. Eg. Tide and Rin

 Positioning by Symbols: Some companies use some symbols for positioning their
products. Eg. Vodafone symbol.

Product Differentiation – Definition, Types, Importance & Examples

The markets are noisier and more crowded than ever, and customers are overwhelmed
with too many choices. That is why standing out from the competition has become
imperative for businesses with a long-term vision.

There are two ways a business can set themselves apart from the other players in the
market: through cost leadership or through product differentiation. While cost
leadership attracts more price-conscious customers, product differentiation is a

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great technique to enforce brand positioning and word of mouth marketing strategies
and get more loyal customers.

What Is Product Differentiation?

Product differentiation (or just differentiation) is a marketing process of differentiating

an offering (product or service) from others in the market, to make it more appealing to
the target audience.

It involves defining the offering’s unique position in the market by explaining the unique
benefit it provides to the target group. This may also be referred to pinpointing a unique
selling proposition of the product to make it stand out from the crowd.

Why Is Product Differentiation Important?

The increased competition has divided the demand among different players in the
market. This has made it very important for businesses to make their customers
understand what different they have to offer.

Besides making the product survive in the market, product differentiation is important
for the following reasons:

• Product differentiation translates the product attributes into benefits.

• It answers the biggest question of the customers – ‘What’s in for me?’.

• It gives the customers a reason to purchase the brand’s product and repeat the
purchase.

• It increases the recall value of the product.

• It increases brand loyalty and builds brand equity.

• Attribute-based differentiation is important for the brand to defend their price

from levelling down to the bottom part of the price spectrum.

Product Differentiation Types & Factors

Differentiation depends on customer perception. It’s not how the brand sees its product,
it is how the customer recognises the product. There are three types of product
differentiation:

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1. Horizontal differentiation: Distinctions in products that cannot be evaluated in

terms of quality. E.g.: Mineral water brands.

2. Vertical differentiation: Distinctions in products that can be evaluated in terms

of quality. It’s a case where it is possible to say that one good is better than the
other.

3. Simple (or Mixed) differentiation: Differentiation based on numerous

characteristics.

A product can be differentiated based on:

• Price: The price is the most common determinant of which target group will be
attracted to a brand’s product. It separates a premium product from economical
products. Example: Zara’s products are considered premium products.

• Features: Features like size, shape, ingredients, origin, etc. differentiate products
in the same price spectrum. They also help the brand to back their high pricing
decisions.

• Performance & Quality: A good quality product always stands out from standard
quality products. Example: Duracell lasts 10 times longer than ordinary batteries.

• Reliability: Some products are known to be more reliable than others. That is,
there is a less probability of them malfunctioning or failing within the given time
period.

• Looks: Looks play a very important role in differentiating the product especially
in the case of apparels and other luxury products.

• Channels of Distribution: Channels of distribution also plays a vital role in

differentiating a product from the competition. For example, Amway uses a
selective distribution strategy to position itself as a quality brand.

• Complexity: The level of complexity of usage of a product plays a very important

factor in differentiating products, especially in the technology industry.

• Location: Manufacturer’s location, brand’s home country, and retailers’ location

play an important role in differentiating a product from its competitors.

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• Marketing efforts: Marketing efforts give rise to the brand image which is a
decent product differentiator. Other marketing efforts like sales promotion act as
an add-on to differentiation strategy.

• After-sale services: Good after sale services make the customers have faith in the
brand and make them differentiate it from others.

Services as offering add many more factors of differentiation. These are ease of ordering,
delivery (on time or before time), experience, company-customer relationship,
personalization, etc.

Product Differentiation Examples

A person doesn’t need to travel to places to witness examples of product differentiation.

Product differentiation can be witnessed in grocery stores, TV advertisements, and even
when you choose Facebook over Google+.

Examples of Simple Product Differentiation

• Choosing an iPhone over an Android as the customer considers iPhone to be a

status symbol and believes that it has an easier interface as compared to Android.

• Choosing a Tag Heuer watch over Titan as the customer prefers a Swiss
watchmaker. Plus, he believes that Tag Heuer is a better brand than Titan.

• Choosing to order a product on Amazon than to visit Walmart as the customer

doesn’t want to leave his house.

Examples of Horizontal Product Differentiation

• Choosing between different mineral water brands. The customer doesn’t know the
real difference but chooses one anyway.

• Two ice-cream stalls selling similar ice-creams, but the customer chooses the one
closer to them because s/he is indifferent between them.

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 A 2.5 Marketing Management

Examples of Vertical Product Differentiation

• Intel i3 and Intel i5. The customer clearly knows the difference between the two
and chooses one according to his preference.

• Choosing Duracell over other batteries because the customer believes that it lasts
longer.

Advantages of Product Differentiation

Besides being an imperative for survival in the competitive market, product

differentiation has the following advantages:

• Creates Value: Product differentiation gives a reason to the customers to choose

the brand over others.

• Helps in defending high prices: It helps the companies to give a reason why they
charge a high price for their product.

• Helps in non-price competition: It allows the companies to compete in areas

other than price.

• Creates brand loyalty: A successful differentiation strategy creates brand loyalty

among the customers.

• Creates a perception of no close substitutes: A successful product

differentiation strategy may create a perception among the customers that there
isn’t any substitute available in the market.

Disadvantages of Product Differentiation

• Added pressure on the manufacturers: Product differentiation adds a

substantial amount of pressure on the manufacturers to decide which attribute
could turn out to be the USP for that product.

• Can increase prices: Sometimes, differentiating a product adds to the production

and marketing costs which can be transferred to the end-users.

• Increased Revenue Not Guaranteed: Product differentiation doesn’t guarantee

more sales and more revenue as a business can even fail in predicting whether the
customer would appreciate the USP or not. {*** ** ***}
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