Essay by evavaliangUniversity, Bachelor'sC-, March 2007

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1. IntroductionDifferentiation is seen by many as essential for competing successfully and to earn a price premium for the brand. Indeed the stated goal of much advertising is to differentiate the brand. In this essay, the definition of differentiation is explained. In addition, this essay will discuss the debate critically with reference to the literature in the area of price premium always comes with differentiation, and it will give which side of the debate I agree with and explain why. Furthermore, it will discuss how does differentiation help the firm to compete and make a profit?2. What is differentiation?According to Mercer (1992) Differentiation is the practical 'positioning' of products or services so that they are distinctive from their competitors. The firms' strategy is to make its product different from its competitors to convince customers that they are more appealing. The more differentiated that the products or services are, the less direct the competition gets.

In addition, differentiation is the foundation of strong branding. Strong brands stand for something unique: they have a vision of what it is they can do for customers, and clearly communicate this to consumers (Jim, W., Tim, B., 1996).

3.Is the outcome of differentiation always price premium?The clear picture is that there are many routes to differentiation and changing the monetary cost of acquisition is just one of them.

According to Jonathan B (1997) that differentiation is not certainly good or bad. Buyers usually gain from the availability of various product offerings to serve their differing preferences. However differentiation can also help the exercise of market power. The producer of a differentiated product often enjoys a localized monopoly and may be able to charge a higher price than it otherwise could. Moreover, buyers may care about the firm's image, so that the simple fact of...