Importance of Differentiation. An Investigation Into the Effectiveness of Differentiation, Main Tools, and the Features that Make a Product Unique

Diploma Thesis, 2011

83 Pages


Table of Contents



List of Figures

List of Tables

List of Appendices

1. Introduction
1.1. Rationale of the Topic
1.2. Aim and Objectives
1.3. Methodology
1.4. Chapter Outline

2. A Literature -based Investigation Into the Effectiveness of Differentiation
2.1. Effectiveness and the Benefits of Differentiation
2.1.1. Differentiation: The Concept
2.1.2. Differentiation: A Definition
2.1.3. The Concept of the Unique Selling Proposition
2.2. A Differentiation Strategy’s Main Categories, Approaches, and Tools
2.2.1. Principles of Differentiation
2.2.2. Differentiation Categories
2.2.3. Differentiation Instruments
2.3. Brief Overview of the Cruising Industry

3. Primary Research: The Methodology
3.1. Research Philosophy: Interpretivism
3.2. Research Approaches: Deductive and Inductive Theory
3.3. Applied Research Strategy: Qualitative Research
3.4. Applied Research Method: In-depth Interviews and Observational Methods
3.4.1. General Considerations
3.4.2. Limitations

4. Presentation and Analysis of Research Findings
4.1. Objective One: Effectiveness and the Benefits of Differentiation
4.1.1. Findings, Analysis, and Interpretation
4.1.2. Conclusion
4.2. Objective Two: Clarification of a Differentiation Strategy’s main Categories, Approaches, and Tools
4.2.1. Findings, Analysis, and Interpretation
4.3. Objective Three: Creating the Unique Cruise Experience
4.3.1. Findings
4.3.2. Analysis and Interpretation
4.3.3. Conclusion
4.4. Objective Four: Best Practice Methods for Determining Differentiation Potential
4.4.1. Findings
4.4.2. Analysis and Interpretation
4.4.3. Conclusion

5. Conclusion Appendix


This paper analyzes the effectiveness of differentiation and the strategy’s main instruments to further refer them to the exploration of the uniqueness of cruise tourism product features, and best case procedures regarding effective differentiation strategies in tourism sectors. Having used the combination of primary and secondary sources, the research concludes that differentiation is regarded as an effective marketing tool, preventing competition exclusively based on a product’s price. It is reported that, as products converge in terms of their features, the creation of a USP becomes more essential. Different levels of a product unveil various possibilities for differentiation; and it is suggested that branding and positioning are used as applicable differentiation instruments. Although differentiation based on the core product is found out to be a common way of distinguishing cruise line products, differentiating through value added features and the product’s service component are used more frequently. The findings further reveal that marketing principles are used to differentiate tourism products. Due to the tourism industry’s ‘me-too’ market nature, branding is considered to be a valuable soft differentiation tool. Market research, brand awareness measurement, and conjoint-analyses are useful means for quantifying the product in the eyes of the customer; additionally, pricing and conditions systems can differentiate a tour operator’s product in due consideration of booking periods and the number of participants.

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This diploma thesis is dedicated to my parents who supported me with constructive advice during my academic career.

Further, I would like to thank all participants of the expert interviews. Their valuable information has been build upon my knowledge about the marketing’s differentiation strategy.

A special thanks to Prof. Dr. Claudia Bornemeyer who has been very supportive during the entire progress of writing my diploma thesis. She has been a magnificent supervisor and I appreciate her help.

Finally, I would like to thank Alexander Michalski, who supported me throughout the entire process.

List of Figures

Figure 1 Porter’s generic strategies

Figure 2 Realizing competitive advantages through differentiation

Figure 3 The product segmented into layers

List of Tables

Table 1 Comparing customer value with production costs

Table 2 Comparison: cruise line companies’ websites with regard to USPs

Table 3 Classification of interview participants

List of Appendices

Figure A Aida ’s ‘Beratungsnavigator

Figure B AIDAfun

Figure C MSC Web Check-in

Figure D Hapag-Lloyd Kreuzflüge

Figure E Norwegian Cruise Line ’s Freestyle Cruising

1. Introduction

This chapter will outline the rationale of the dissertation topic, its main pursuit, and the methodology that will be used in order to achieve stated aims and objectives of the thesis. Further, a brief summary of the contents that are covered by the dissertation is presented.

1.1. Rationale of the Topic

The fact that the subject is considered a substantiated feature of today’s marketing influenced the author’s decision to select differentiation as her topic for the dissertation. The actuality and presence of the theme encouraged to explore further ideas that should help firms to distinguish their products. This dissertation pursues the evaluation of the differentiation strategy, its potential, and the elaboration of best practice methods that can be used to differentiate products effectively.

Precisely in times like these, where the world’s economy is dynamic, globalization takes place, and more and more products are being launched, firms often underlie a huge competitive pressure in which they see themselves forced to contrast their products. In order to achieve this, enterprises must offer distinct benefits to their customers so as to overcome a price battle. In today’s market places, product offers are highly similar and therefore replaceable for the customer. Hence, many customers see a product’s price as the prevalent reference point regarding their purchase decision, which in the end, leads to market competition that is dominated by price reductions. Such commoditization leads to the fact that companies must deal with shrinking prices, a tightened competition, as well as decreasing margins. Dickson (1997) defines product differentiation as “the act of distinguishing a product from its competitors on one or more basic performance or image features” (p. 333). Being able to differentiate products on another basis than on the basis of price reduction enables firms a stronger competitive edge that can be sustainable in the long-run. Thus, in order to deal with the high pricing pressure and predatory competition, managers must differentiate the organization’s products and services stronger than before. This dissertation will focus on elaborating several instruments that firms can utilize to establish a successful differentiation strategy, thereby considering the concept of the unique selling proposition and methods of communicating points of difference effectively through branding and positioning. Moreover, a content analysis of the cruising industry should evaluate cruise tourism product features that will be analyzed with regard to uniqueness and points of difference. Further primary research should provide valuable advice on how managers in tourism branches can approach the differentiation strategy. Summing up, these insights and the creativity that the topic involves state why the author has decided that her thesis should cover the concept of differentiation.

1.2. Aim and Objectives

The overall aim of the dissertation is to analyze the relevance of product differentiation, its benefits, and to give an insight into mechanisms that precede an effective differentiation strategy. The subsequent purpose will be the exploration of the uniqueness of cruise tourism product’s features.

For the purpose of achieving this aim, sub-objectives have been established. First of all, the concept of differentiation, a definition of the marketing’s strategy, and its importance will be illustrated using secondary data. Based on this, the role of the unique selling proposition will be exemplified. Sub-objective two will be a clarification of the differentiation strategy’s main categories and general strategic approaches. Within this context, the dissertation should further discuss starting points of a differentiation strategy, and analyze attributes that are relevant and meaningful in the eyes of the customer, before getting into a deeper analysis of differentiation instruments based on different product layers. Special attention will be paid towards the roles of branding and positioning as part of differentiation. For sub-objective three, particular consideration will be given to cruising, investigating the tourism product’s points of difference. In order to achieve this aim; primary research will be used in form of a content analysis. Finally, it is intended to provide information on manager’s best case procedures aimed at determining effective differentiation strategies in tourism sectors. This will represent sub-objective four.

1.3. Methodology

In order to build a foundation on which the primary research will be based on, literature review will be used to examine the overall topic’s key concepts. Information will be gathered using secondary sources, such as books, magazines, and electronic versions of journals. The data base on the subject of differentiation is enormous, covering diverse concepts and strategies, which facilitates the elaboration of the overall theme. In order to achieve the overall objective as mentioned in section 1.2., this research project needs the combination of primary and secondary data. Chapter 3 of the dissertation explains in detail steps and methods that will be used for primary research.

1.4. Chapter Outline

This dissertation is compartmentalized into three main sections. In the first place, a literature - based exploration will provide a comprehensive view on the subject of differentiation, its importance, and the marketing strategy’s main tools. After a clarification of the concept of the USP, a deeper insight into differentiation instruments will be given, considering product enhancement with particular regard to the effectiveness of branding and positioning as differentiation instruments. At the end of the literature review, a brief overview of the cruise industry is presented, introducing the reader into the topic, since the content analysis of the primary research is going to explore cruise line websites. All in all, the literature review will illustrate the framework on which the primary research will be based on.

The second chapter is concerned with illustrating the methodology, informing the reader about the research philosophy, approaches, and the applied research strategy that will be used for primary research.

Finally, results and an analysis of the findings will be presented, relating observation results obtained from primary research to the findings acquired in the literature review.

2. A Literature -based Investigation Into the Effectiveness of Differentiation

The following chapter provides the reader with a literature -based research into the topic of differentiation. It aims at conveying key elements on the subject and building a frame work for primary research. The chapter is divided into two main parts that are interlinked with each other.

The first part of the literature review explores the overall concept of differentiation, clarifying its meaning and importance. For this purpose, the concept of the unique selling proposition will be explained in detail.

The second part covers the evaluation of main tools of the differentiation strategy.

Further, ways of communicating points of differentiation will be analyzed with regard to the roles of branding and positioning.

Additionally, secondary research will provide a brief overview of the cruise industry as framework for the content analysis, which is a component of the subsequent primary research that is going to investigate the cruising product, as well as methods for creating the unique cruising experience.

2.1. Effectiveness and the Benefits of Differentiation

2.1.1. Differentiation: The Concept

As stated in an article in the Journal of Marketing Management ‘What is Differentiation and How Does it Work?’, differentiation is considered an old concept, as expressed by Chamberlin (1933), Robinson (1933), and Smith (1956), as cited in Sharp & Dawes, 2001; however, it is a common feature of modern markets, and one that is very basic to them (Sharp & Dawes, 2001).

A differentiation strategy is characterized by an organization’s effort to isolate itself from the competition in either one or more than one market segments; herewith, it tries to launch products and services in a certain industry or sector that are unique in the eye’s of the customer (Weis, 2004). Differentiation can be referred to several features of a product like to its brand name, service, design, technology, or to the dealership network (Porter, 1999). According to Sharp and Dawes (2001: 755), differentiation prevails when “a firm /brand outperforms rival brands in the provision of a feature(s) such that it faces reduced sensitivity for other features.” Commonly, differentiation appears on the distribution, as well as on the awareness level, and it is less likely used for functional features due to competitive matching (Sharp & Dawes, 2001).

Considering all this, it can be concluded that differentiation is a strategic management tool that helps organizations increasing their profits through the provision of products that appear more distinct and hence, more valuable to customers. Additionally, differentiation can take place based on various elements of a product, and it is a tool that should isolate a firm from its competition.

2.1.2. Differentiation: A Definition

Sharp and Dawes (2001) already argued that differentiation is, like many other concepts in business literature, one that has lots of blurry meanings. Besides the numerous alternative definitions that are already in place, the term ‘differentiation’ further lacks references to any formal definition. The difficulty in defining what differentiation really is lies in the variation of the strategy’s impact, since there are several ways of how differentiation can raise profitability.

However, through the conduction of an expert panel survey, Sharp and Dawes (2001) found out that there exist four ways of how differentiation can benefit an organization. First, it makes the product desirable, which in turn increases profit. Secondly, it makes the product unique, and this can justify higher price charges. Thirdly, through unique offers demand will exceed supply, which will again increase profits. Finally, marketing costs shrink due to higher brand loyalty created by differentiation; hence, it is cheaper to sell to existing customers (Sharp & Dawes, 2001).

For the purpose of this dissertation, two definitions are being used, out of which the first one offers a rather strategic viewpoint clarifying the position of a firm and its competitor, while the latter focuses on the product’s features and the firm’s relationship towards its customer.

In general, a basic explanation of the term ‘differentiation’ can be as follows:

“Differentiation exists, when a firm’s offering is preferred, on some buying occasions (or by some customers all of the time), over rival firm’s offerings.” (Sharp & Dawes, 2001: 743).

Dickson (1997), as cited by Sharp & Dawes (2001: 741) defines differentiation in more detail:

”Product differentiation is the act of distinguishing a product from its competitors on one or more basic performance or image features” (p. 333) “The more distinct the image positioning and performance of a product or service on dimensions desired by the segment, the lower the price sensitivity of the segment will be” (p. 179).

Dickson (1997) encompasses elements that play a key role in strategic differentiation; he focuses on the distinct product feature, the role of the market segment, and on how differentiation affects pricing.

A definition of differentiation that takes into account the customer’s viewpoint is as follows:

Differentiation is the determination by target customers of distinctive criteria with regard to objects of comparison.

Main idea of this definition is that customers will differentiate only those values that they perceive as meaningful for themselves (Kotler, Keller, & Bliemel, 2007). Summing up, as the term differentiation implies several definitions, it is important to clarify these. The dissertation at hand focuses on Sharp and Dawes’s (2001) definition of differentiation, which underlines a product’s uniqueness and the creation of a competitive advantage. A definition proposed by Dickson (1997), should further specify elements that are covered by a differentiation strategy.

2.1.3. The Concept of the Unique Selling Proposition

The importance of the development and preservation of the unique selling proposition (USP) becomes clear when we take a look at some of the features that characterize those years. Besides the emergent of new technologies, especially in the communication area, a product’s durability decreased while the research and development of certain products increased at the same time; market saturations became more present, and an increased competition, especially through globalization and incoming foreign companies, was taking place; added to that, the population in many western countries decreased, resources became scarce, and political instabilities and catastrophes were present (Vollert (1999), as cited in Kamenz, 2003).

The creation of USPs began in the 1970’s where the world turned into a dynamic market place that was characterized by fast changes. The origin of all marketing deliberations lies in the consideration of customer needs and expectations. In order to fulfill those expectations, all marketing efforts and measures have to be aligned in such a way that the firm can build a USP (Vollert (1999), as cited in Kamenz, 2003). The concept of the ‘USP’ can be ascribed to Rosser Reeves who developed the hypothesis that every consumer brand, as well as every marketing campaign should aim at communicating a single point of differentiating value. According to Reeves, advertisers should invest into one campaign, until 100 percent of the audience is completely sensitized of the message (Rothenberg & Randall, 2005). Simon (1988), as cited by Vollert (1999) in Kamenz (2003), defines USP as a performance that is, from the customer’s point of view, superior to that of the competitor. According to Naumann (1992), it is of high importance for organizations to articulate specific performance lifts, which can refer to either the product itself, the service, or to the firm’s corporate culture, in such a manner, as that the customer can identify and evaluate the benefit. This benefit helps the firm to gain a sales advantage over its competitors, which in turn leads to a competitive edge (Becker, 2006). However, the more products converge in terms of their form, function, and price, the more important a detailed distinction becomes which then mainly focuses on the firm’s service- and/or delivery ability (Naumann, 1992). Hence, the creation of a unique selling point, which is defined as the strategic marketing’s target dimension that strives for uniqueness and distinctiveness of an appearance (Zentes & Swoboda, 2001), is a crucial element in standing out against the competition. In general, customers do not necessarily benefit equally from identical products that have equal price tags, but that are offered by different suppliers. Differences always exist, and these differences can be found in service and delivery that surround a product; and right there, one is able to find a considerable amount of ways for the creation of a USP (Naumann, 1992).

Indeed, one can infer that there is not an absolutely sheer ‘me-too’ product on the market because every single vendor offers characteristic differences. In most cases, customers are not counter posed visual differences, and still, they decide to buy one product over another. Apparently, there must be decision criteria and reasons that go beyond price or technical aspects of a product; there must be reasons that fall into the emotional sector, and that are subject to a highly individual and subjective customer evaluation process (Naumann, 1992).

Naumann (1992) expressed two viewpoints from which the service and delivery package can be observed; on the one hand, service and delivery are strongly dependent on a firm’s employees. On the other hand, it is the corporate culture that has high influence on the way a service e.g. is designed and performed. These two aspects are interlinked with each other, since a company’s employees shape the corporate culture, just as the overall organizational culture influences employee’s behavior. Therefore, it is crucial for a marketing department not only to communicate the corporate culture’s characteristics through advertising or sales promotion means, but also through the means of teaching staff how they can reflect these characteristics with each customer contact (Naumann, 1992). Considering an enterprise’s view, the service and delivery package can stand for various aspects, such as for customer proximity, the service, or a company’s brand name. Many firms set up their businesses in immediate proximity to their customers where they usually have the largest market share, too (Naumann, 1992). Another appraisable USP can be the brand name (this topic will be discussed in more detail in later chapters), which can illustrate a unique differentiation point with regard to the competitor; even a corporate logo can offer high value to the customer, one must only consider the importance of communication (Naumann, 1992). Anil Menon, former Vice President of the IBM Corporation, once said: “Effective branding is a mission-critical business priority” … “as product-markets increasingly commoditize, a clear brand strategy can offer a path to competitive differentiation” (Aaker, 2004: Back Cover). An example for a successful USP is the punctual delivery promise of Domino’s Pizza: “We deliver hot, fresh pizza in 30 minutes or less or it’s free.” (Business e-Coaching, 2001).

To conclude, difficult times for marketers, as well as stronger competitive dynamics resulted in a more precise consideration of customer needs. Rosser Reeves was the first that brought along the idea of the unique selling proposition. As cited by Vollert (1999) in Kamenz (2003), Simon (1988) defines USP as a point of difference against the competition, as viewed from the customer’s perspective. Naumann (1992) suggests that a USP can refer to several product features, indicating that a firm’s service- and/or delivery ability becomes the main important differentiator, and that a pure ‘me-too’ product does not exist, since points of difference based on the emotional product level can always be found. Introducing the service and delivery package that can stand for customer proximity, the service, or a company’s brand name, Naumann (1992) demonstrates that service is strongly dependent on a company’s employees, who are in turn influenced by the corporate culture.

2.2. A Differentiation Strategy’s Main Categories, Approaches, and Tools

2.2.1. Principles of Differentiation

Generally speaking, four approaches to product differentiation and positioning exist, which either are producing better products in terms of their quality, creating newer, faster, or cheaper goods or services. The firm either produces something that performs obviously better than that of the competitor, or it creates a new solution for the customer that did not exist before. Being faster, means producing a good or service that benefits the customer more rapidly; and cheaper simply refers to the creation of less expensive goods and services as compared to the competitor. However, if a company manages to differentiate its products effectively as perceived by the consumer, the firm will not compete on the basis of price anymore; instead, it can set the price in such a way, as that it is reasonable, as well as profitable for the enterprise (Kotler et al., 2007).

Figure 1 indicates the main differences between quality and cost leadership, which are the generic strategy types with regard to the competitive situation; the difference between the aims of either of the two approaches is illustrated; while quality leadership strives for keeping costs as low as possible, a quality leadership’s objective is to create product differentiation in order to be able to justify a higher price. Noteworthy is also the price- elasticity difference between the two strategic approaches; competing on the basis of price can lead to success as long as there is no competing force that offers a cheaper product, since the demand’s price elasticity would lead to customers switching the provider, while the differentiation strategy on the other hand, if effectively processed, ensures that demand remains relatively inelastic, meaning that customers are more willing to accept a higher set price, if they perceive the product as unique and valuable.

Figure 1: Porter´s generic strategies

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Source: Mind Tools. (2011)

2.2.2. Differentiation Categories

According to the Boston Consulting Group, a differentiation strategy can be seen out of four different perspectives, which they refer to as the four branches that categorize differentiation options, as well as the strength of competitive advantages that can be gained through the process of differentiation. Some industries allow for the establishment of numerous competitive advantages, while others do not. In order to categorize a branch into one of the four categories, one must consider first, the possible size of the competitive advantage that can be gained, and secondly, the possible amount of rudiments that are necessary for the realization of a competitive advantage. Taking this into account, four branches can be derived (Kotler et al., 2007):

Branches that are Influenced by Volume Fluctuations Firms in this sector are not exposed a lot of possibilities for gaining competitive advantages; however, if a competitive advantage is achieved, it is one that is more extensive in most cases. Usually, two options exist: the firm can either strive for quality or for cost leadership; either way, both options allow for the achievement of huge success. An example would be the construction machinery industry.

Deadlocked Branches

As it is prevalent in the steel industry, such branches do not have many potential competitive advantages, and each of the possible advantages is relatively small. The reason for that is that firms in this sector do not have much room for a recreation or modification of their products in terms of technology or costs. The only way for creating differentiation is to fine-tune the product’s service component, which in the end, leads to rather small competitive advantages. A direct correlation between profitability and market share does not exist.

Fragmented Branches

Here, a lot of differentiation options exist, each of them offering only small advantages against the competition. An example is the restaurant industry, in which companies are able to differentiate their products in a several ways, but through which they cannot achieve huge market shares. The restaurant ‘Kalkarer Mühle’ e.g. created a USP by offering the kids meal ‘Räuberteller’ for € 0,00, which stated that ‘you get an empty plate and are allowed to swipe away everything that you like from your parents’ plate’ (Brauhaus Kalkarer Mühle, n.d.).

Specialized Branches

In a specialized sector, companies are exposed to a great amount of differentiation possibilities, and each of them is offering high economic potential with regard to the competitive advantage that has been gained. The key to success is that these firms are focused on a certain market segment, providing specialized products to their target customers (Kotler et al., 2007).

Figure 2 illustrates the degree of differentiation in relation to the competitive advantage that can be achieved.

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Figure 2: Realizing competitive advantages through differentiation

Source: Gb3group. (n.d.)

In summary, several options for differentiating exist, although some of them are more and others less profitable. However, as pointed out by the authors, there is no such a thing as the lack of differentiation options, since there is a vast number of ways for product differentiation.

2.2.3. Differentiation Instruments

In order to follow a successful differentiation strategy, it is important to set up effective marketing instruments and tools (Kotler et al., 2007). The following chapter will clarify criteria that are needed in a differentiation strategy.

A marketer that pursues a clear differentiation and positioning strategy must emphasize his offering’s unique characteristics and features, since not every brand distinction is perceived as valuable in the eyes of the consumer. According to Kotler et al. (2007), the introduction of possible distinctive features, as well as the underlined communication of such, can be adapted if following criteria have been met:

- Substantiality: value added is perceived by a substantial amount of potential buyers
- Uniqueness: the company is the only one offering this particular product feature
- Affordability: the consumer can afford to pay the premium price
- Communicability: the customer is able to recognize the distinction
- Superiority, advance and protection: the difference is not easily imitable and it is difficult for competitors to determine methods of creating similar features, creating an advance for the firm
- Sustainability: the distinction must have the potential to create a sustainable position
- Profit contribution potential: the introduction of the distinctive product characteristic must lead to higher yields

An example for differentiation that does not comply with the above mentioned structure is the case of the former Westin Stanford Hotel that is located in Singapore. The company tried to differentiate its position through uniqueness; it communicated to customers that it was the highest hotel construction in the world. However, the campaign failed because management did not realize that this ‘unique feature’ was just of little value to the hotel’s target customers. As the authors point out, a hotel building’s height is not necessarily a characteristic that plays a significant role for tourists; it might even be perceived as disruptive by some guests (Kotler et al., 2007).

A further differentiation starting point was introduced by MacMiller and McGrath (1998), as cited in Kotler et al. (2007), whose idea was based on a differentiation strategy that focuses on customer relationship in the first place; the authors suggest that management should analyze each possible relationship interface with the customer (i.e. order placement, service performance, product installation, payment, product benefit, and purchase return), and thereby identify differentiation options.

The main idea is to analyze every single aspect that is mentioned above with regard to customer experience; a manager must ask him-/herself what the customer undergoes, feels, and also does alongside, when he/she gets in touch with the good or service. The authors indicate that especially here, differentiation starting points can be identified that will be relevant for the customer decision-making process (Kotler et al., 2007). Figure 3 visualizes different layers of a product.

Figure 3: The product segmented into layers

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Source: Adapted from Fuer Gruender. (n.d)

There are various possibilities for differentiating a firm’s products from its competitors (Weissmann as cited in Kamenz, 2003), which can be illustrated by looking at different levels of a product (see fig. 3). The main goal is the systematization of all these layers, which they refer to as differentiation instruments, so that a successful differentiation can take place. However, it should be taken into account that not all products must necessarily be differentiated using each layer (Homburg et al., 2009). Differentiation Based on Different Layers Differentiation on the Basis of a Product Feature

The core of each product relates to its functional aspects, such as its performance, reliability, and availability. It is the fundamental product performance that the customer is buying; in the case of a hotel, the product’s core would be ‘quiet and sleep’. (Homburg, Staritz, & Bingemer, 2009; Kotler et al., 2007). One differentiation example of the airline industry, which was clearly focusing on the product feature, is the strategy of Airbus. In order to distinguish itself from the main competition Boeing, Airbus followed a triple differentiation strategy. First of all, the company referred to its fuel consumption that is 12 per percent fewer than that of Boeing. Another differentiated feature is the increased cabin comfort; and finally, the firm introduced the term ‘Commonality’ with which it refers to their ‘fly-by-wire’ system that makes the different airplane types similar in terms of their handling; this in turn, makes it easier for the aviator to switch between different Airbus types (Kotler et al., 2007).

One element of differentiating based on product features is modifying the product environment; this can be the packaging or other aspects that compose a product’s tangible surrounding. If it is a good, the product environment would be its visual design, shape, color, etc. If it is a service, the product environment would refer to the design of uniforms e.g., or point of sale. As outlined by the authors, a signal for reliability and integrity is for instance the use of consistent uniforms in the business consultancy sector (Homburg et al., 2009).

Enhancing a product based on its surrounding offers the possibility to provide upscale goods. Looking at the automotive industry for example, an ‘extra’ can be the installation of electric windows, or air condition. A manager must ask him-/herself how to filter out which components of the product surrounding are the most relevant to the consumer (Kotler et al, 2007). The importance here is that a product has to function, i.e. its core feature has to be sound, even without product enrichment (Homburg et al., 2009). The authors illustrate this with an example: considering a car, the installation of a sport type steering wheel would be regarded as product enhancement because one can still drive the car without it, since it has a usual steering wheel. Also, too many add-ons can be problematic, as they can arouse stress and insecurity in the consumer’s mind (Mick and Fournier (1998), as cited in Homburg et al., 2009). Some companies try to differentiate their products through the use of features that do not create much relevance. An example is shown in the article ‘The Effects of Irrelevant Attributes on Brand Communication’ by Bauer, Albrecht, Haber, and Neumann (2007): The product ‘Gliss Kur Liquid Silk Shampoo’ offered by Henkel, is being differentiated through the add-on ‘Silk’, where the wording apparently leads to a significant lift against the competition, but where the attribute itself does not make any difference to the product (Carpenter, Glazer, and Nakamoto (1994) & Broniarczyk and Gershoff (2003), as cited in Bauer et al., 2007). Nonetheless, brand preference can be evoked though the use of irrelevant attributes and it is even prevalent when consumers get to know the facts (Carpenter et al., (1994), as cited in Bauer et al., 2007).

According to Kotler et al., 2007, it is important to periodically interview customers, asking questions such as ‘What is it that you like about the product?’ or ‘What are some extra features that you would like to see, and how much would you pay for this particular added value?’. However, before considering any changes, it is important to investigate the exact customer value that an ‘extra’ will constitute, as well as the resources needed for its installation. An ultimate decision requires further deliberations, such as ‘how many customers are willing to buy the ‘extra’’, ‘the amount of time needed for the production and launch’, and ‘how long it would take competitors to imitate the feature’. The main idea is illustrated in Table 1, which shows the cost-benefit-ratios of different car amenities (Kotler et al., 2007):

Table 1: Comparing customer value with production costs for three specific car amenities

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Source: Kotler et al. (2007), p. 410

Another core product element refers to its performance, which accrues from the product’s ability to fulfill essential customer performance requirements. In the case of the personal computer industry, performance can be referred to elements such as the ease of use, speed, or to the size of the computer’s internal memory. Generally speaking, a customer is willing to pay for a better performing product, if he/she perceives that the performance gap between two providers is bigger than the cost difference between the two products (Kotler et al., 2007).

In addition, a product feature has to signalize durability, which is a very important aspect for consumers. In general, a customer is willing to pay more for a product that is longer durable. However, an important point here is the authors’ differentiation between products that are subjected to bold fashion trends or to fast technological innovations, and those that stay the same for a long period of time, since customers usually do not want to pay the surcharge for durability if the product’s amenities and performance features change rapidly (Kotler et al., 2007).

Reliability, a further potential differentiation instrument that is product-related, measures the probability of product performance defects within a certain time period. A differentiation based on reliability does not only increase consumers’ willingness to pay more for a certain product, but it can also provide firms with long-term success, since the reputation of the good or service is strengthened (Kotler et al., 2007). Product reliability is a reason for consumers to pay a higher price, but only if they can be assured that the product really delivers what it promises. One tool that is commonly used for signaling reliability is to offer product warranty, with which the seller assures the buyer that a product is as it has been presented before in advertising, descriptions, or via other communicating means (Hong-Zhong, Zhi-Jie, and Murthy, 2007). Another differentiation instrument with regard to the sheer product is certainly its ability to be maintained or repaired fast and easily. According to the authors Kotler et al. (2007), the ideal case would be the establishment of a product that can be repaired effortlessly by the consumer him-/herself. They refer to a diagnostic device that is implemented into the good, and that allows maintenance experts to immediately navigate the consumer via telephone, so that he/she can fix the performance defect. Other effective tools are for example FAQs (frequently asked questions) provided on websites in order to support customers (Kotler et al., 2007).

Differentiation based on styling can be a further effective instrument that helps firms creating valuable and especially, visual distinction. Kotler et al. (2007) refer to product design as being the most essential differentiation and positioning tool during an intense competition. Styling is important in so far, as that it determines a consumer’s feeling through a product’s appearance. Since style elements can be protected through their registration as a trademark, their biggest advantage is the fact that competitors cannot easily replicate a particular product (Kotler et al., 2007).

The exterior of a product can be used to communicate information, and it can be used to stimulate a consumer’s sensors besides the intrinsic value that he/she has from the good or service. Such stimulations can hold on for a relative long period of time, since they become part of the customer’s sensory environment, like a telephone that is kept as an antiquity, although there are newer and more advanced telephones with regard to technological features on the market (Homburg et al., 2009). Meanwhile, designing a product is considered to be the most difficult task, since it must embody all of the above mentioned features into one visual picture. According to the authors, design means the sum of all integrated product elements that influence the product’s appearance in terms of its function and look. The designer’s task is to analyze how much effort has to be invested into the development of a product’s reliability, durability, performance, styling etc. (Kotler et al., 2007). Ferdinand Alexander Porsche already once said: “If you analyse the function of an object, its form often becomes obvious.” (Form & Function-The Battle, n.d.); underlining the often claimed precept that in product design, the form of a product should always follow its aimed-at function (Townsend, Montoya, & Calantone, 2011). Differentiation through Service

Product accompanying services can be differentiated in addition to the differentiation of tangible product elements. According to Kotler et al. (2007), differentiating a product based on its service component can be the key to competitive success; especially when the product’s tangible aspects do not possess high differentiation potential. According to Vandenbosh and Dawar (2002), as cited in Homburg et al. (2009), greater success can be achieved through the way a company treats his/her customer than through the offering of the product as such.

The authors mention a range of service elements that should be considered in a differentiation strategy.

One of these elements is the product’s delivery aspect; involving delivery time, the adherence to a time frame, as well as an accurate delivery process, it determines how effectively a product is being delivered to the consumer.


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Importance of Differentiation. An Investigation Into the Effectiveness of Differentiation, Main Tools, and the Features that Make a Product Unique
International University of Applied Sciences
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Ivana Vilotic (Author), 2011, Importance of Differentiation. An Investigation Into the Effectiveness of Differentiation, Main Tools, and the Features that Make a Product Unique, Munich, GRIN Verlag,


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