What is product differentiation?

Product differentiation refers to the perception of differences among products in a marketplace. This concept is crucial in competitive markets where numerous similar products exist. Differentiation can occur through various attributes such as quality, features, design, branding, or customer service. When consumers perceive a product as distinct from its competitors, they may develop a preference for it, allowing the company to potentially charge a premium price and foster brand loyalty.

In contrast, the other options do not accurately capture the essence of product differentiation. Lowering production costs is more related to operational efficiency and cost leadership strategies rather than how products are perceived differently in the market. The level of customer service and advertising methods can enhance a product’s appeal but are not fundamental to distinguishing the product itself from its competitors. These elements can support a differentiation strategy but do not define the concept of product differentiation on their own.