VALUE ADDITION AND PRODUCT DIFFERENTIATION ARE CONCURRENT PROCESSES.
In fact, it is the awareness about the requirements of customer value that encourages a firm to continuously upgrade a generic product to different levels of augmentation to suit different segments of the market. This way, value addition and product differentiation are concurrent processes; value addition is the end purpose; identifying the attributes to be provided, incorporating them in the product, and differentiating the product from competitorsâ€™ product.
In short, effective differentiation requires careful evaluation of the benefits sought by the target audience and incorporating the benefits in the product offer. As mentioned earlier, various market research techniques are available to assess and measure the benefits sought by a specific consumer group in a particular product in a given context, and to construct a comparative profile of benefit perception. The profile will indicate the relative importance given by consumers to different benefits, which are linked to different product attributes.
Conditions for Differentiation to Succeed
For differentiation to be rewarding, the differentiation claim must be real satisfying to the user, and be also sustainable. The claim has to be backed by the product performance.
The customer using the product has to be convinced that the differentiation claimed is true and that it is actually delivered. Taking the Prestige cookware example, the cookware should prove a non-stick vessel in the kitchen. And, the Teflon should work and work better than other similar products in the market. In the Caterpillar example, the spare parts should actually reach the customer in any part of the world within 24 hours of the request. Caterpillar should have lined up the infrastructure like dealer network, storage points, transport arrangements and inventories to claim.
The Differentiation should be perceptible
The differentiation claimed may be real or psychological, matter-of-fact or subtle. The main requirement is that the consumers must perceive the product as intended by the firm. In other words, the differentiation claimed has to be readily perceivable. Moreover, it is not enough if a few consumers perceive the difference. To be of real marketing significance, a differentiated product has to be seen as different and distinct by a sufficiently large segment of consumers.
Should be rooted in Competitive Advantage
Product differentiation is no easy game. For differentiation to succeed, the firm must have built up the required competitive advantages. Channel and technology clout, unique production process, flexible production facilities, and advanced R&D set-up for product innovations are all avenues of competitive advantage. The success of differentiation depends on the firmâ€™s capacity to develop such avenues.
Brand image is the differentiation plank for a product like Coca-Cola. It fights on the power of its name, the sway it holds on the minds of millions of consumers round the globe. But to achieve this dominant image, the company has carried out a sustained marketing effort, supported by heavy investments, over a long period of time.
Similarly, Hindustan lever has spent over 100 years and huge investment to build a brand like Lifebuoy. It means that only if a firm is committed to brand development, it can build brands that can serve as a source of competitive advantage and fight on their differentiation strength.
When we take service as the differentiator, Maruti is a good example to cite. Maruti has built up an extensive service network in India, consisting of over 180 dealer service workshops and 1,200 authorized service stations spread out in 470 towns and cities. No other car company operating in India can claim a dealer-cum-service spread anywhere close to that of Maruti. Channel/service clout is a competitive advantage for Maruti and it uses it to differentiate and strengthen its product offer. It can boast of a Maruti service station in every nook and corner of the country, including sparingly populated areas, and promise that the Maruti vehicle will be attended too in all places.
The point to be remembered is that product differentiation as a strategy can work only if the product-claims are sustained. And, one can make sustainable product claims only with the support of the relevant competitive advantages.