What is a product?

Product differentiation can be used to classify categories of cars based upon budget or premium prices to suit different target markets

A product is goods or a service that is sold to customers or other businesses. Customers buy a product to meet a need. This means the firm must concentrate on making products that best meet customer requirements.

A business needs to choose the function, appearance and cost most likely to make a product appeal to the target market and stand out from the competition. This is called product differentiation.

How product differentiation is created:

  • Establishing a strong brand image (personality) for goods or a service.
  • Making clear the unique selling point (USP) of goods or a service, for example, by using the tag line 'quality items for less than a pound' for a chain of discount shops.
  • Offering a better location, features, functions, design, appearance or selling price than rival products.

Firms face a dilemma if they choose to launch a premium brand. Improving the quality or appearance of a product adds to the cost of making it. In turn, this means that the business must charge higher prices if they are to make a profit.

An alternative marketing strategy is to produce a budget brand. If a mobile phone has limited functions and a standard design then it can be manufactured cheaply. The low production costs allow for discount pricing.