Product Differentiation

Presented to
Prof. SAMIK SHOME

By :- (Group 3)
Abhishek Kumawat
Biswajit Shukla
Manpreet Singh Chhabra
Palak Shruti Dubey
Sadaf Ali Khan
Tejus Y S
What is Product Differentiation ?

The effort by firms to produce goods

that are different from other types
of goods.
Example:- Automobile models

 Major activity of both existing and

potential new firms.
Objective of Product Differentiation

To develop a product that is perceived as

unique by the potential buyers.

LOGITECH’S WIRELESS KEYBOARD AND MOUSE

 Monopolistic Competition
Monopolistic competition is a common market
structure where many competing producers sell
products that are differentiated from one another.

Perfect Competition

•Many firms, free entry

•One Product

Monopolistic Competition Monopoly

Many firms, free entry One firm, no entry

Differentiated Product One Product
Examples-

◦ Small Retail Stores

◦ Restaurants (especially Fast Food joints)

◦ Barber Shops
 FEATURES OF A PRODUCT

 Technical Standards.

 Quality Standards.

 Design characteristics.

 Service characteristics.
 Vertical Product Differentiation

 A firms product differs from its rivals’ products in respect to Quality.

 Superior And Inferior Products.

 In terms of the quantity and quality of the functions and/or the

durability of the product.

 Vertical Quality differences between products tend to reflect

differences in production costs.
Horizontal Product Differentiation

A firms product differs from its rivals’ as well as its own

products , although those products are seen to be of similar
quality.
i.e. products are not generally regarded as superior
or inferior.

 Differ in respect to style, design, colour , etc

 Within a range do not significantly alter costs of production.

 Puzzles Explained
How Product Differentiation explains puzzling facts if all goods were
homogenous.

Intra-Industry Trade :-

 Traded between countries in goods from the same or similar

industries.

Example:

 U.S both buys and sells beer to Canada.

 In order for people to benefit from the variety of beer.
 Budweiser(U.S) being exported to Canada.
 Molson(U.S) being exported to U.S.
 Contd..
ADVERTISEMENT

 Product Differentiation explains why there appears to be

so much advertising.
 If all products were homogenous, advertising would make
little sense.
 Even the greatest product won’t sell if no one knows
about it.
 Way to provide information how products differ.
 Purpose is to make people try new products.
 Advertising will never sell inferior product.
 It is used to create a perception about product
Effect of Advertising
Contd..
Consumer Information Services.

Helps consumers sort through exaggerated

claims in advertising or help them get a better
perception of what the real differences between
products are.
Example :-
Bike Magazines.
How Are Products Differentiated?
Physical Characteristics

Customer Service

Location

Time

Convenience

Reputation
Optimal Amount
Individual firm Demand Curve
EQUILIBRIUM IN THE LONG RUN
 CONCLUSION
Product differentiation creates customer
preferences.

Almost anything can be a base of

differentiation

Product differentiation principles can be

applied to our personal and professional
lives.
Thank You.