Product differentiation

We speak of product differentiation when an already existing product is modified in such a way that an additional modified product can be offered on the market in addition to the original product.

A change is made to a product that is already on the market, in which the basic properties are retained, but some other properties are changed.

Types of product differentiation

Technical product differentiation - In the case of technical product differentiation, the quality of the goods is improved, for example by improving the packaging of the goods or the goods themselves (physical and functional changes).

Psychological product differentiation - The psychological product differentiation changes little in the product from an optical perspective. Nevertheless, the external image of the product is redesigned through advertising in such a way that it takes on a new brand personality. The change therefore only takes place from a purely “taste”, i.e. subjective point of view (aesthetic and symbolic change).

The differentiation options at a glance:

  • Physical change
  • Functional change
  • Aesthetic change
  • Symbolic changes

Objectives and disadvantages of product differentiation

goals - The aim of product differentiation is to achieve a higher total profit. By changing a product, different groups of buyers are encouraged to buy the product. This increases the company's reach. Since the requirements of the customers on the respective product are constantly changing, the new needs of the customers should be taken into account with the help of the variation of the product.

disadvantage - The so-called cannibalization effect could be problematic. The danger is that the marketing of a new product will replace the old one and thus no longer buy it. In addition, if the production amount is very small, the production cost may increase.

Examples of product differentiation

If a company has previously only offered small cars and now decides to also offer sports cars and station wagons, there is talk of product differentiation.

If a company only offers small cars, but does so in different quality levels and quality equipment, then one can also speak of product differentiation. These examples can also be combined, for example by the company deciding to also offer several types of cars in different quality classes.


  • In the case of product differentiation, a modified product is brought onto the market alongside the old product
  • the modification of the product is carried out in a technical or psychological way
  • this is done in order to adapt to the changed customer requirements
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