Product Differentiation ICSE Class 10

Projects and assignments on Product Differentiation for ICSE Class 10 and other school students.

Introduction

The markets are more crowded than ever, and customers are overwhelmed with too many choices when it comes to buying products. That is why standing out from the competition has become crucial for businesses with a long-term vision.

There are two ways a business can set themselves apart from the other players in the market: by offering the cheapest prices or through product differentiation. While offering lower prices attracts more price-conscious customers, product differentiation is a great way to increase the strength of a brand and to get more loyal customers. Product differentiation is a marketing process of differentiating an offering (product or service) from others in the market, in order to make it more appealing to the target audience.

This project will take a look at specific brands within five fast-moving consumer goods – bathing soaps, toothpastes, facial creams, shampoos, ballpoint pens and analyse how their products are characterised by product differentiation. This project will look at these brands and identify distinctive features of each of these brands. 

Main Body

When we talk about a market, we generally visualize a crowded place with a lot of consumers and a few shops. People are buying various goods like groceries, clothing, electronics, etc., and the shops are also selling a variety of products and services as well. So, in a traditional sense, a market is where buyers and seller meet to exchange goods and services. But in economics, we do not refer to a market as a physical place.

What is a Market?

Economists will describe a market as coming together of the buyers and sellers, i.e. an arrangement where buyers and sellers come in direct or indirect contact to sell/buy goods and services. For example, the market for mobile phones will constitute all the sellers and buyers of mobile phones in an economy. It does not necessarily refer to a geographic location.

A market is not restricted to one physical or geographical location. It covers a general wide area and the demand and supply forces of the region. There must be a group of buyers and sellers of the commodity to constitute a market, and the relations between these sellers and buyers must be business relations. Both the sellers and buyers must have access to knowledge about the market. There should be an awareness of the demand for products, consumer choices, and preferences, fashion trends, etc.

Markets can be further classified based on various factors such as geographical location, time, nature of transaction, regulation. So not all markets are similar. We can characterize market structures based on the competition levels and the nature of these markets.

Types of Market Structures

A market structure essentially refers to the degree of competition that exists in a market. There are also other determinants of market structures such as the nature of the goods and products, the number of sellers, number of consumers, the nature of the product or service, economies of scale etc.

There are different types of market structures; however, all of these market structures may not necessarily exist, and these are more of theoretical concepts. However, they help understand the principles behind the classification of market structures.

Here are the four basic types of market structures in any economy.

1. Perfect Competition: In a perfect competition market structure, there are a large number of buyers and sellers. All the sellers of the market are small sellers in competition with each other. There is no one big seller with any significant influence on the market. So, all the firms in such a market are price takers.

   A perfect competition market is pretty much a theoretical concept due to the following assumptions:

   • The products on the market are homogeneous, i.e. they are completely identical
   • All firms only have the motive of profit maximization
   • There is free entry and exit from the market, i.e. there are no barriers
   • And there is no concept of consumer preference

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   Monopolistic Competition: This is a more realistic scenario that actually occurs in the real world. In monopolistic competition, there are still a large number of buyers as well as sellers. But they all do not sell homogeneous products. The products are similar but all sellers sell slightly differentiated products. Now the consumers have the preference of choosing one product over another. The sellers can also charge a marginally higher price since they may enjoy some market power. So, the sellers become the price setters to a certain extent.

   For example, the market for cereals is a monopolistic competition. The products are all similar but slightly differentiated in terms of taste and flavours. Another such example is toothpaste.

3. Oligopoly: In an oligopoly, there are only a few firms in the market. While there is no clarity about the number of firms, 3-5 dominant firms are considered the norm. So, in the case of an oligopoly, the buyers are far greater than the sellers.

   The firms in this case either compete with another to collaborate together. They use their market influence to set the prices and in turn maximize their profits. So, the consumers become the price takers. In an oligopoly, there are various barriers to entry in the market, and new firms find it difficult to establish themselves.

4. Monopoly: In a monopoly type of market structure, there is only one seller, so a single firm will control the entire market. It can set any price it wishes since it has all the market power. Consumers do not have any alternative and must pay the price set by the seller.

   Monopolies are extremely undesirable. Here the consumers lose all their power and market forces become irrelevant. However, a pure monopoly is very rare in reality.

Understanding Product Differentiation

Product differentiation is a process used by businesses to distinguish its products or services from other similar ones available in the market. This tactic aims to help businesses develop a competitive advantage and define compelling, unique selling propositions (USPs) that set their product apart from competitors.

In many industries, the barrier to entry has dropped significantly in recent years. As a side effect, these industries have seen substantial increases in competitive products. In increasingly crowded competitive landscapes, differentiation becomes extremely important for a product’s survival.

Businesses often ask what does their product or service do/accomplish/offer that the competition does not? Product differentiation helps the organization answer this question and focus on the unique value a product brings to its users. If no effort is put into a differentiation strategy, products risk getting lost in a sea of competitors and will never be able to capture a decent market share.

Types of Product Differentiation

Several different factors can differentiate a product. However, there are three main categories of product differentiation. These include horizontal differentiation, vertical differentiation, and mixed differentiation.

• Vertical Differentiation: An example of vertical differentiation is when customers rank products based on a measurable factor, such as price or quality, and then choose the most highly ranked item. Although the measurements are objective, each customer chooses to measure a different factor. For example, a restaurant might top one customer’s list because their meals are lower in calories. Another customer might choose a different restaurant because the meals are cheaper, and price is the most important factor for them.
• Horizontal Differentiation: An example of horizontal differentiation is when customers choose between products based on personal preference rather than an objective measurement. For example, whether someone chooses a vanilla, chocolate, or strawberry milkshake comes down to personal taste. If most of the products on the market cost about the same and have many of the same features or qualities, the purchase decision is based on subjective preference.
• Mixed Differentiation: More complex purchases tend to consider a mix of vertical and horizontal differentiation. When buying a car, for example, a consumer may consider safety metrics and mileage, both of which are objective measures and examples of vertical integration. However, the consumer may also consider what colors the car is available in or the brand image. Each consumer will place a different weight of importance on each of the criteria.

Distinctive features of these brands

Bathing soaps:

• Pears: Pears soap was the world’s first mass-market translucent soap. The Glycerin content is a sign of the gentleness in the soap, and transparency of the soap is shown as a sign of purity of the soap.
• Lux: It is available in many different variants (Almond oil, Orchid extracts, Milk cream, Fruit extracts, Saffron sandalwood oil and Honey). Strong brand promotion, uses celebrities to advertise the soaps, but the soaps are relatively lower priced.
• Rexona: Rexona soap comes in two variants – Green & White. Rexona soaps have a lingering aromatic fragrance that appeals to many.
• Dove: Dove contains one-fourth moisturizing cream which keeps the skin soft. The makers also promise that the soap will not leave any residue on the skin.

Toothpastes:

• Colgate: Available in various variants (mint and other tastes) and is also available in different package sizes. The toothpaste is often bundled with Colgate toothbrushes. Colgate brand has extremely high brand awareness due to advertising.
• Forhans: Forhans gel toothpaste claims to whiten the teeth. The makers have positioned the product as a toothpaste that helps remove teeth stains and has a whitening effect on the teeth due to the presence of Activated Charcoal in the toothpaste.
• Meswak: Meswak has positioned itself as an herbal toothpaste that is made from natural herbs and does not contain any harsh chemicals. The makers claim that the toothpaste is made from trusted ayurvedic products that help protect the teeth against decaying and germs.

Facial creams:

• Ponds: Excellent products like Ponds age miracle, Ponds cold cream, rejuveness anti-wrinkle cream, as well as creams for Men. Ponds creams are free from any toxic or mercury content Packaging of Pond’s creams are eye-catching and suitable for its target market.
• Nivea: Nivea positions its facial creams as superior products that do not leave residue behind and does not clog pores and does not lead to blemishes. Its advertisements show the Facial Residue Test to suggest the effectiveness of their facial creams.
• Dove: Dove positions its facial creams as ones that are provides the best moisturizing. In fact, “Moisturising” is the USP of Dove for all its products. Dove creams offer rich care and a pleasant feel on the skin during and after the application.
• Lakme: Lakme uses the term “Perfect Radiance” for its facial creams and positions its facial creams as ones that gives the face a radiant and fresh glow. Lakme creams contain essential vitamins that intensely nourishes the skin.

Shampoos:

• Palmolive: Palmolive sells various shampoos such as Palmolive naturals, Palmolive luminous oil, and anti-dandruff shampoo. Palmolive positions its shampoos as ones that are gentle on the hair and provides a silky shine effect after use.
• Head and Shoulder: Head & Shoulders produces normal as well as anti-dandruff shampoos. Head & Shoulders positions its shampoos as ones that are chemical-free and protects against flakes, itch, oil and dryness with regular use.
• Clinic Plus: Clinic Plus differentiates its shampoos by positioning them as products that have ingredients that nourishes and strengthens the hair which enables the hair to keep growing.
• Pantene: Pantene positions its shampoos as ones that helps prevent hair-fall, and makes rough hair smooth, silky, soft, and more manageable.

Ball point pens:

• Luxor: Exceptional smooth writing, uses low viscosity ink, Rubberized comfort grip
• Reynolds: Innovative quick-drying ink helps you write faster with these pens, and there is no smudging or spreading of the ink. Comfortable full body grip helps hold the pen better.
• Camlin: Camlin packs are also smooth to write but their main differentiation is that they are available in packs of multiple colourful pens, and they are more affordable.
• Cello: High quality pens that are comfortable to hold, have nice designs, and provide exceptionally smooth writing. Cello prices are priced on the higher side.

Conclusion

The increased competition in the market has divided the demand among different players in the market. This has made it very important for businesses to make their customers understand how their products differ from the others.

Product differentiation involves defining the offering’s unique position in the market by explaining the unique benefit it provides to the target group. This can also be referred to as pinpointing a unique selling proposition of the product to make it stand out from the crowd. Products can be differentiated based on various factors such as Price, Features, Quality, Looks, Reliability, Marketing Efforts, After-sale services.

Product Differentiation is commonly seen in a Monopolistic Competition market structure. A monopolistic competition market structure has large numbers of buyers and sellers, and has similar but differentiated goods. Because the products are differentiated in this market, consumers perceive the products to be unique which enables the producers to price their products comparatively higher.

 

Bibliography

What Is a Market?
https://www.investopedia.com/terms/m/market.asp

The Firm and Market Structures
https://www.cfainstitute.org/en/membership/professional-development/refresher-readings/firm-market-structures

Product Differentiation
https://www.investopedia.com/terms/p/product_differentiation.asp

Product Differentiation: What Every Product Manager Needs to Know
https://medium.com/agileinsider/what-every-pm-should-know-about-product-differentiation-6e658b777bda

Project / ASSIGNMENT Details

Take a case of five fast-moving consumer goods – bathing soaps, toothpastes, facial creams, shampoos, ballpoint pens. Analyse as to how the market for these products is characterised by product differentiation.

Market for all these consumer goods is characterised by product differentiation in view of these goods being produced under different brand names, having different product features with different prices and different preferences of the consumers, etc.

• Bathing soaps: Pears. Lux, Rexona, Dove
• Toothpastes: Colgate, Forhans, Meswak
• Facial creams: Ponds, Nivea, Dove, Lakme
• Shampoos: Palmoline, Head and Shoulder, Clinic Plus, Panteen
• Ball point pens: Luxor, Reynolds. Camlen, Cello
• Look at these brands of five consumer goods and identify distinctive features of each of these brands.