Differentiation is more than just being different to competitors. Differentiation is how a product or service is perceived to be superior in the eyes of customers.
Differentiation may be real or perceived. For example, a company that is first to market with a new technology tends to be perceived as more advanced even after the competition has matched it functionally.
The superiority has to be something that is important to the customer – being superior on a feature that does not matter to a customer is wasted investment.
Differentiation tends to erode over time – sustainable differentiation is the holy grail of marketing.
When is it useful?
If a product is differentiated it leads to superior returns:
- It can charge a price premium to customers
- It can gain share
Use the brand differentiation matrix to:
- Analyse a portfolio of brands to determine which are differentiated
- Track a brand over time to see if it getting more or less differentiated
Tracking a brand over time
A brand is improving its differentiation if it is moving to the top right. It’s differentiation is eroding if it moves towardss the bottom left. Diagonal moves represent management trade-off of price – drop price to win share, or increase relative price, but overall differentiation is unchanged.
How do you do the analysis?
You can use market research to ask customers about differentiation. There is a quantified way to measure differentiation by considering market share and price premium
Calculate the average price point in the market, weighted by volume. Calculate the relative price premium or discount for each brand. Plot the change in market share during the last year for every brand.
Plot your entire portfolio on the graph
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