Bukhara State University

(f) Product Differentiation:
Products are assumed to be homogeneous under perfect competition. Today the markets are no more perfect. We live in a world of monopolistic competition where there are competing monopolies. Here products are similar but not identical. Products are close substitutes for one another. For in­stance, in the case of toothpaste there are several brands such as Colgate, Signal, Binaca, Forhans, Close-up, etc.
The purpose of product differentiation is to make their goods look superior. It is this product heterogeneity which provides monopoly power to the firm.
E.H. Chamberlin has mentioned two types of differentiation:
(i) Differentiation based upon the characteristics of the product itself. This includes real and imaginary differences.
(a) Real differences—Materials used, design and workmanship.
(b) Imaginary differences—Advertising, packaging and brand names.
(ii) Differentiation based upon the conditions surrounding the sale of the product. They are convenience of location of the shop, courtesy, reputation for fair dealing, etc.
Porter identifies ‘differentiation’ as one of the three generic strategies a firm can adopt to secure its competitive advantage in an industry. The other two are ‘cost leadership’ and ‘focus’. According to Porter, “Differentiation provides insulation against competitive rivalry because of brand loyalty by cus­tomers and resulting lower sensitivity to price”.
Models of product differentiation tend to be of two types:
(a) Address Type Models:
Here goods are characterised by their attributes. Address type models seek to characterize the degree of product differentiation in equilibrium.
(b) Non-Address Type Models:
Here, there is a set of goods that can be produced, and consumers have tastes over the range. Consumers like variety.
(g) Market Segmentation:
The concept of market segmentation is an outgrowth of the marketing concept. Its main thrust is to give separate attention to the distinctive characterisation of each segment. Market segmentation has been defined by Stanton as, “The process of taking the total, heterogeneous markets for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.”