Product Differentiation

Product Differentiation

 

There are many basic differences between the kinds of products marketed in the various segments of the economy. Some products in the competitive segment are undifferentiated, while others are differentiated. In some cases, the products are intrinsically different; in others, manufacturers are successful at making their products appear different form those of their competitors. Even in cases in which a product cannot be made different in substance, producers can get premium prices if they can persuade customers to believe that their products are superior. Some producers spend huge sums of money on sales personnel and advertising to accomplish that purpose. In the jargon of the economists, “they attempt to make the demand curve for the products of their firm somewhat inelastic.” If their efforts are successful, they can charge higher prices for their products. However, if their efforts are defeated by the counterefforts of competitors, as is frequently the case, price competition comparable to that in pure competition can result. Grocers, for example, are well acquainted with this economic fact.

 

For both differentiated and undifferentiated products, producers compete on quality and service as well as price. The consumer market is more susceptible to producers’ advertising claims than are buyers in the industrial market; therefore, the major portion of advertising effort is directed toward the consumer market. Nonetheless, industrial supply management professionals must be aware of advertising and sales tactics and be very careful to determine quality from an analysis of facts, not from unsupported claims.