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Examples of Product Differentiation

Sneakers used to be inexpensive canvas shoes with rubber soles that differed little across brands. Now there are tennis shoes, basketball shoes, aerobic shoes, and other sport shoes made of many materials and having many special features. As brands have added features such as pumps, lights, and what have you, prices have increased and price differentials across branded shoes have grown. Similarly, nonprescription sunglasses, which used to be nearly homogeneous products, have been "sneakerized" in recent years. Now fashion and premium sunglasses, which vary by feature, account for almost half of that market. Other producers have capitalized on the trend, too. Sony makes 100 varieties of Walkman devices, Seiko makes more than 3,000 watches, and Phillips produces 800 models of color televisions.

The role of consumer perceptions is particularly important with toys. A daycare center was used for testing many new toys. The four-year-olds were having a great time shoving their way under the bar of a limbo game. When they touched a plastic chicken on the bar, it let out a raucous giggle. Unfortunately, the contraption kept falling apart, scattering batteries and parts. One teacher whispered to a reporter, "Can you say crap?" The kids did not share this view. When the game fell apart, they all screamed and rushed to pick up the pieces and to push them back together. Asked what she liked best about the game, one girl said, "When it all falls down."

When buying a personal computer, a typical consumer pays a $295 premium for an IBM, $232 more for a Compaq, and $92 more for a Dell than for a similarly configured Gateway. Zeos, NEC, Everex, and Packard Bell sell at a discount relative to Gateway. Many experts believe that these differentials are larger than the measurable differences in quality among the brands.

Similarly, Peter Lardong, a chocolate maker in Berlin, creates playable chocolate records of holiday songs such as Bing Crosby's rendition of "White Christmas," which he is able to sell at a premium over his other chocolate confections.

Finally, some consumers (not to name names) buy the San Francisco Chronicle, an alleged newspaper, even though the New York Times is available at the same price, because the Chronicle has cartoons and articles about plastic chicken limbo games and chocolate records, unlike the Times.

SOURCES: Goldman, Steven L., Roger N. Nagel, and Kenneth Preiss, "Why Seiko Has 3,000 Watch Styles," New York Times, October 9, 1994:9;"How Much Extra will You Fork Over?" PC Magazine, 12(22), December 21, 1993:32; Howe, Kenneth, "Results Are in for Great Toy Test," San Francisco Chronicle, December 9, 1995:E1; "New Products" San Francisco Chronicle, December 9, 1995:E3.

© 2003 Jeffrey M. Perloff. Reprinted by permission.

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