Product differentiation in monopolistic market competition

It becomes essential for a product to have an independent identity of its own especially when there are close substitutes in a monopolistic type of competition. Products like pant lengths, shirt pieces, dress pieces etc., there are many varieties and hence close substitutes. However each brand of product is differentiated by the consumers.

Product differentiation may take place in the form of:

1.Brand Name:
Products are known by their Brand names. Over the years certain firms acquire goodwill in the market. Firm’s name itself becomes a brand name for its product. Godrej cupboards, Phillips TV are some of the examples. Some products get established in the market by the product’s name as in the case of Colgate Tooth Paste, Parker Pen , Tata Tea etc.

Products are manufactured in different sizes. Economy, Family, Large, Extra large are some of the sizes in which the products are available. Certain firms may specialize in sizes like Family size or economy size. Thus the Product is known in the market for its particular size.

Products could be differentiated on the basis of design. Refrigerators, Cupboards, Scooters, Cars, are some of the products which are considered by the buyers on the basis of design.

Color is one of the important factor on which goods are differentiated. Textiles, Readymade Garments, Plastic Products, Automobiles, are preferred by the Customer on the basis of their color.

5.Taste and Perfume :
Products like Confectioneries, toothpaste , soaps, cosmetics are selected on the basis of taste or perfume

6.Good Salesmanship:
Customers may prefer the Products of a particular firm against its rival firms simply because of good salesmanship, positive attitude, approach and cooperation of the sales people.

7.After Sale Service:
Consumer Durable items have a warranty period during which free service is offered. Services are offered thereafter on payment. Quality and promotions of after sale service influence the customers while selecting the products.

Product differentiation through the above methods helps firms to acquire a certain degree of loyalty for their products from the customers. Brand or Product loyalty gives a certain degree of monopoly power to the firms. It further enables the firms to charge a high price though marginally. Being in a competitive market ,a firm, in spite of having captivated the customers cannot afford to remain complacent or become negligent about those aspects which had initially enabled it to acquire the brand loyalty. To maintain the monopoly element in the monopolistic competition it is essential to compete with the rivals and retain the monopoly power over the loyal customers. Customer loyalty cannot be taken for granted but needs to be cultivated and retained.