Economics Technology's Role Product Differentiation in the

Economics Technology's Role Product Differentiation in the Competitive Open Market of Today's Economy Product differentiation is one of the most difficult things for a firm to achieve in a competitive, open market. In a market with a large number of potential product competitors, it is difficult to convey to the consumer what makes a particular product unique. The problem of product differentiation highlights the fact that it is not simply enough that a consumer wishes to buy more soda, for instance, to increase sales.

Rather it is important that the potential consumer wishes to buy a specific company's soda, one's own particular brand of soda, and only that brand of soda. For consumers to demand a particular product, there must be a sense of 'specialness' conveyed to the product produced by one's own firm as opposed to other firms.

This sense of specialness can be a uniqueness of cheapness, quality, or simply the sense of identity that is conveyed to the consumer by buying that particular product and that particular product alone, as opposed to others. One of the problems of product differentiation is that differentiating a particular product can be very difficult to achieve because of incomplete customer information, which results in customer confusion between similar but different products produced by different firms.

However, the technological media of the Internet provides unprecedented access to a specificity of advertising through web pages and email. The presence of advertising on web pages can create associations within the consumer's minds between particular products and the information conveyed upon the website. The product's sense of specialness is thus communicated through associations between that product, an image, and other products. Of course, specific products, now often have their own websites. These sites provide a dual function. First, they are an additional medium of advertising.

But how to encourage consumers to click onto such advertising-based websites, one might ask? By providing other services upon the websites, from games to information, product differentiation is achieved and an increased sense of desirability is created for that product and that product alone. On a more prosaic level, perhaps, such websites enable manufacturers to give information about their products to prospective customers, to inform their customer is safer, cheaper, and better equipped than apparently similar competitor brands.

Technology thus has the ability to give benefits to purveyors in creating a particular product 'name' in a competitive market. Key to differentiating products is the concept of 'branding,' or creating a brand name that takes on a life of its own almost beyond that of the usefulness or the inherent quality of the object being sold. The disembodied medium of the Internet is perhaps ideal for branding.

Products upon the Internet cannot be seen or tasted or touched, but multiple associations through images and words can be generated through advertising. Unlike advertising on a television, where ads must be linear and tell short 'stories' over the course of several minutes, advertising on the Internet can be diffuse and widespread.

The word Pepsi and its association with the 'Next Generation' can be conveyed by attaching the name to popular clothing, to websites devoted to fans of particular youth-oriented rock stars, and even websites associated with preparing teens for such adolescent rites of passage as taking the SATs. None of this has to do with the product itself, but it distinguishes Pepsi from the classic quality of its predominant rival, Coke.

In Chapter 8 of Economics for Business, the authors John Sloman and Mark Sutcliffe suggest branding is key to profit maximization in either a large or small firm.