Companies need to offer products that stand out from competition to maintain viability; this can be done through differentiation and positioning. Differentiation and positioning are two separate, but closely related concepts for marketing a product. Brand managers should understand both concepts to effectively apply them to their own offerings.
Differentiation
According to Michael Porter of the Harvard Business School, differentiation is one of the generic strategies that a firm can use to gain a competitive advantage in the marketplace. Differentiation involves offering something that your competitors do not, such as superior service, higher quality or a distinct design. Differentiation serves two purposes: it provides customers with a reason to choose the company's product over a competitor's and it allows a firm to charge a premium price. Ultimately, consumers are willing to pay more for products they perceive as providing specific benefits that are lacking in competing products.
Positioning
Positioning is refers to a company's purposeful manipultion of the consumer's image of them. For example, McDonald's positions itself as a low-cost, quick provider of meals, while a restaurant like Spago Beverly Hills provides high-quality meals in an upscale environment for a premium price. Products and services are positioned to meet the needs of different consumers, with the most successful offering multiple products that are positioned differently. For instance, the Holiday Inn operates hotels under various brands, such as Holiday Inn Express, which is positioned as a low-cost, no frills hotel, and Holiday Inn Select, which is positioned as an upscale, premium-priced hotel -- there's something for everyone who needs a hotel.
Relationship
According to Narayana Rao, of the Industrial Engineering and Management Faculty at the National Institute of Industrial Engineering, "positioning is the result of differentiation decisions." A firm starts by differentiating its offering, and then positions the brand accordingly. For instance, a manufacturing firm might decide to differentiate itself on the basis of quality and service. It would then position itself in the minds of consumers as a high quality manufacturer with a high level of customer service.
Importance
Differentiation and positioning are important to the financial success of firms. If a firm does not differentiate its offerings and position them distinctly in the minds of consumers, then it must compete solely on a price basis. This occurs frequently with commodities such as sugar, steel or lumber. The result is that a company must simply try to offer the lowest prices possible, thereby reducing margins and making it difficult to profit.
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