Product differentiation is the creation of similar products with several different characteristics in order to meet the demand of a wider audience. Product differentiation is necessary when a company's audience is too diverse and it is impossible to satisfy the demand of each segment with a single universal product. The task of differentiation is to take into account all the wishes of the audience and provide them with a product that meets their needs. The most elementary example of differentiation is selling clothing in several sizes. It is obvious to the store that customers cannot have the same body type and height, so they offer products for different parameters.
There are two types of product differentiation: vertical and horizontal. Vertical differentiation involves the production of the same product with minor differences. Its task is not to satisfy new needs, but to expand the range and create diversity for the audience. For example, the production of milk chocolate with different fillings — jam, caramel, nuts, etc.
Horizontal differentiation is necessary for creating products that will cover new audience needs. These products can differ significantly from the previous ones because they depend on the peculiarities of the audience. For example, a company produces and sells home armchairs. After differentiation, office chairs and children's chairs appeared in the range.
Advantages of differentiation:
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allows you to increase the audience coverage;
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helps in the fight against competitors;
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increases customer satisfaction;
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expands the range.
Disadvantages of differentiation:
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with insufficient market research, investment in creating new products may be in vain;
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it is difficult to come up with a new competitive product;
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requires a significant amount of time and investment.
