Product differentiation

In economics, strategic management and marketing, product differentiation (or simply "differentiation") is the process of distinguishing a product or service from others to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as from a firm's other products. The concept was proposed by Edward Chamberlin in his 1933 book, The Theory of Monopolistic Competition.

There are three types of product differentiation:

  1. Horizontal differentiation: Based on a single product characteristic which is subjectively evaluated by consumers
  2. Vertical differentiation: Based on a single product characteristic which can be objectively evaluated by consumers
  3. Mixed differentiation: A combination of horizontal and vertical differentiation factors.
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