Marketing: Product Differentiation - Essay Example

? Marketing: Product Differentiation MARKETING: PRODUCT DIFFERENTIATION In marketing, differentiation of products refers to the process via which products or services are distinguished from other offerings made by competitors. This is aimed at making them more attractive to the firm’s target market. This process involves differentiating a product from both competitors and other offerings by the same company. Edward Chamberlain proposed the concept in the year 1933. Product differentiation aims to showcase the differences inherent between products. It makes products more attractive via contrasting unique qualities with competing products. Successful differentiation gives the firm a competitive advantage as customers will look at the products as superior and unique and can be achieved in various ways. This paper will first detail eight ways to differentiate product offerings, and then concentrate on packaging the product in a more creative manner and incorporating new functional features into the product or product innovation. Strategies for Product Differentiation One way to differentiate products is via product innovation by adding functions or features into a product and commanding a higher price (Trout & Rivkin, 2012: p 34). These features can be added through acquiring or licensing complementary feature sets or by using the firm’s in-house team for product development. Another way to differentiating products is through packaging. At times, all it takes to differentiate or re-energize a product is via changing the packaging. This was very effective when it was used in collaboration with another product and delivered in an innovative manner. While this method does not have enough value to change a consumer’s life, the manner of packaging offers more convenience allowing them to charge more (Trout & Rivkin, 2012: p 45). A firm could also pursue other market niches in areas that are unsophisticated (Trout & Rivkin, 2012: p 67). When firms find it difficult to pursue market leaders, some begin approaching un-trafficked sectors where the consumers will be excited to try new products. This tactic minimizes competition and leaves the consumer impressed by the product since the firm has raised the performance bar in delivering the product. Yet another product differentiation strategy is via the generation of referrals. A firm, in this case, helps to cultivate referrals and create sales models around the type of selling that are consultative while being less confrontational (Trout & Rivkin, 2012: p 76). In a competitive market, prospects referred by happy customers will be inclined to buy products. This can be achieved by offering incentives to current customers in the hope they will send referrals. Other firms will offer increased service as a means of product differentiation. They combine superior service with a commodity product that helps to differentiate this commodity. Through re-defining their service, the firm, redefines the playing field and offers a home-court advantage since other competitors do not use this combination while they charge a premium for the product. Another strategy is via figuring out what they can guarantee. Since the firm has to deliver on expectations from the client or refund them, they will offer an upfront guarantee (Trout & Rivkin, 2012: p 87). A firm could guarantee their clients that their prices are the best, and offer to refund their money if they find cheaper items of the same quality elsewhere. Since the customer has not time to compare prices, they will buy this product because the price is guaranteed to be the lowest. Firms could also collaborate with complementary service or product providers when their product does not stand by itself as a unique offering. Both entities benefit from this arrangement, for instance, the HBO’s partnerships with motels to show their movies allows HBO to have exclusive viewership in these motels while the motels benefit from showing exclusive movies. Finally, a firm could also employ their hidden assets as a means of differentiating their products (Trout & Rivkin, 2012: p 98). For example, FedEx acts as a company that can deliver packages overnight although it is a logistics and transportation company. By leveraging this core competency, they have established a logistics-consulting group. In addition, they use this to roll out more programs like home delivery, ground delivery, and FedEx Custom Critical delivery. Product Innovation Product innovation is defined as applying new ideas to processes and products in order to improve value. This value can be defined broadly to include benefits to the firm and consumer, as well as to other firms. Product innovation is the introduction of significant qualitative alterations in a product, in existence or introduction of a new product. On the other hand, service innovation involves the introduction of new processes for delivering or making products or services. Product innovation may involve intangible services, tangible goods, or a combination (Trout & Rivkin, 2012: p 54). Examples of product innovations are mobile phones and PCs while the intangible products, which complement the equipment, include computer software that controls the information flow via these devices. Additionally, when tangible and intangible inputs are used in collaboration, they can lead to new products, for example, from collaboration between the two examples above, Facebook was created. These definitions of innovation are grounded in novelty. The main difference between innovation and imitation is that innovation involves bringing something that is truly novel; on the other hand, imitation involves integration of new techniques already in existence. A process or product could be considered new at three levels: the world market, the domestic market and the firm. When a product is new to the world market, the global novelty is enough to qualify it as a genuine innovation. For products, which have not been traded across international borders because of trade restrictions, prohibitive costs of transport, or nature of the products, the “new to the domestic market” test is also sufficient to qualify it as an innovation in that specific economy (Trout & Rivkin, 2012: p 52). However, being new to a particular firm is not an aspect that will qualify it as an innovation because the firm might have adopted the product or process design from a competitor. This is called diffusion innovation with this innovation being new to affirm and new to a firm’s relevant market. Additionally, an innovation has to be introduced to a market to allow the process or product benefit the consumer, as well as for the benefit of other firms. This is a distinguishing factor to a discovery or invention. A discovery or invention begins by enhancing human knowledge without arriving into the market instantaneously as a novel process or knowledge. Therefore, innovation occurs at the junction of a complex process that is preceded by discoveries and innovations and succeeded by adoption of this new product or process by clients, as well as adoption of the best practice processes by most of the competitor firms (Trout & Rivkin, 2012: p 102). This final stage is referred to as diffusion and involves the integration of these innovations into the entire society. Starbucks is a perfect example of a successful innovative strategy. Through innovation, Starbucks reinvented having a cup of coffee, a common experience, into a successful global business. The company’s founder, Howard Schultz sought to bring world-class coffee and the Italian espresso romance to United States espresso bars. Schultz believed that this experience would enrich peoples’ livelihoods and create a community. He also believed that it was possible that the experience could be exported around the world. When he took over, the company had 100 employees serving in 100 stores while it presently has over 200,000 employees serving over 16,000 stores across sixty-one countries (Schultz & Gordon, 2012: p65). When he left, Starbucks began to lose focus on the experience and focused on growth instead. When Schultz made a return as the company’s CEO, the company went back to its very foundation and began to innovate again. Innovations like “babyccinos” grabbed a whole new market segment in teenagers and children Schultz locked up seven thousand one hundred stores and took the workers for barista training (Schultz & Gordon, 2012: p68). The company was sure to let their customers know about their product innovation, through posting a notice on the doors that intimated that the reason they were closed had to do with perfecting their espresso. Months later, they introduced new products and services, like the mentioned “babyccinos”. Starbucks Neighborhood Concept Store: Product Innovation (Pham-Gia, 2012: p54) In addition, Starbucks launched new neighborhood concept stores, as well as introducing the innovative clove brewing system, which were both intended to improve the customer’s coffee experience (Trout & Rivkin, 2012: p121). These changes delivered an impressive financial report, with Starbucks posting their best financial performance in forty years, in 2010. While a majority of companies suffered severe revenue constraints due to the recession effects between 2008 and 2010, Starbucks were able to quadruple their share value, as well as triple their profits. It is important to note that Starbucks’ product innovation was not Schultz’s work alone. However, through his institution of an innovative culture in the company, the individual employees were able to make the innovation happen. Learning plays a crucial role in the creation of this capability, which Schultz’s made a priority. Starbucks Clove Brewing System: Product Innovation (Pham-Gia, 2012: p60) Product Innovation through Packaging In order to attract consumers, a product must be appealingly package. This packaging also serves as a functional and efficient shipping container. Most products need to be packaged, which involves the design of a wrapper or box that holds the product. In addition to holding and protecting the commodity, the packaging also acts as a powerful marketing tool. The product could have multiple packaging, for example, the container itself, the enclosing box meant for protection and a larger case for transportation. Each package that the consumer sees offers the company an opportunity to communicate to the potential consumer during a critical phase of their decision-making (Trout & Rivkin, 2012: p 135). The packaging promotes the product by complementing other activities aimed at the promotion. It communicates the core benefits of the product and addresses. They can also be used to display the product such as with cell phones and condoms. Packaging also provides for differentiation and additional value creation. It does this by increasing the justification for purchasing the product. The packaging dispenses the product by giving information to ease the product’s use or give the recommended size of portions, for example, with hair products (Trout & Rivkin, 2012: p 137). They also preserve the product by sealing perishables like food products, as well as offer safety warnings to consumers, such as on cigarette products. Most products that are purchased on impulse are heavily dependent on the communication of information by the packaging, which encourages the consumer to buy. These examples include perfume, music CDs, and software. An increasing number of these products can be sold without help from a floor assistant, which magnifies the impact and opportunity of the package. Well designed product packages give a promotional tool to the firm, as well as offering the consumer convenience value. Starbucks has made it a priority to make their packaging cups 100% recyclable by the beginning of 2013. To do this, they have recruited recycling and packaging industries for help to attain this goal. With Americans utilizing at least fifty eight billion cups a year, they produce at least 645,000 tons of waste (Bussing-Burks, 2011: p76). Simultaneously, the American public is coming alive to the information that the food service industry is attempting to grapple with an uncomfortable truth as far as going green. The solution seemed easy for Starbucks; prevent the used cups from being disposed in landfills and reduce GHG emission. The solution, however, was not that easy. In order for their cups to be recyclable, they had to make sure that the cups were recyclable in the communities where they were sold (Bussing-Burks, 2011: p76). Starbucks Paper Cup with Recyclable Fiber: 2006 (Pham-Gia, 2012: p45) Starbucks Recyclable Polypropylene Cold Cups: 2011 (Pham-Gia, 2012: p46) Starbucks has made previous steps to making their product packaging more eco-friendly and recyclable. They introduced a paper cup that had 10% post-consumer recyclable fiber in 2006 and switched to polypropylene cold cups in 2011, which utilize less plastic and cut down on GHG emission (Schultz & Gordon, 2012: p22). Starbucks, however, is thinking bigger with its new initiative aimed at taking into account the cup’s entire life rather than simply what its contents are. Starbucks has two main aims in introducing their recyclable and eco-friendly packaging for its coffee. One of them is to get consumers to understand the part they contribute in the conservation of the environment. The company realized that they were not just selling coffee but, rather, a promise of responsible living for their clients while nurturing and conserving their environment. They made an attempt to make things better by leveraging their product packaging to make their potential clients want to buy their coffee. Some of the clients who buy coffee from Starbucks are creating ways of expressing their ideals and seeking support from companies that share their ideals, an ideal that Starbucks aims to share (Schultz & Gordon, 2012: p23). What acts to differentiate Starbucks from their competitors are their promise to be socially responsible and eco-conscious, as well as the extent that they will go to in order to fulfill these ideals. In order for Starbucks to fulfill this promise, they should not only restrict the cup material that they use, but also restrict their manufacturing process and product packaging. They give information on their manufacturing processes on their coffee packaging in order for consumers to be attracted to them. By transforming their product packaging to be in sync with their potential consumers’ ideals, the company, has managed to differentiate themselves from the crowded market competition (Simon, 2012: p 102). Through this innovative form of packaging, Starbucks showed that no markets is off limits and that it is possible to succeed via using product packaging as a way to differentiate the company. While coffee products had been in existence before Starbucks came up with their new strategy, they were able to offer their clients something that their competitors were not aware. This was through market segmentation, and packaging their product in a differentiated way to other products. References Trout, Jack. & Rivkin, Steve. (2012): Differentiate or Die: Survival in Our Era of Killer Competition. Hoboken: John Wiley & Sons . Bussing-Burks, Marie. Starbucks. Santa Barbara: Greenwood Press, 2011. Pham-Gia, Khanh. Marketing strategy of Starbucks Coffee. Mu?nchen: GRIN Verlag GmbH, 2012. Schultz, Howard & Gordon, Joanne. Onward: how fighting for what we believe reignited Starbucks. Emmaus: Rodale, 2012. Simon, Bryant. Everything but the coffee: learning about America from Starbucks. Berkeley: University of California Press , 2012. Read More