Product differentiation and market segmentation are two distinct, important marketing strategy concepts. Product differentiation refers to the basic need to have product-related qualities that set your brand apart from the competition. Market segmentation is the breakdown of a large target audience into smaller, more homogenous groups of customers.
As the root word "different" suggests, differentiating your product means making it distinct from other products that are competing for the same customers. While it is important to have a product that is of good quality and offers excellent benefits, you also need something that allows consumers to recognize it as unique. If 10 companies all offer "good" products that are very similar and are marketed similarly, it is difficult for customers to make a choice. This leaves your potential for purchase largely up to random chance. Differentiation is a key element of positioning, which is creating a unique image of your brand in the mind of your target audience.
Generally, you differentiate your product or brand by making it of better quality than competing products. In highly competitive marketplaces, you have to get more creative to develop and communicate better value. Unique features, customized designs, and use of green-friendly or organic materials may separate your product from the crowd. You can also offer money-back guarantees, warranties, service, support, and opportunities for upgrades over time.
Market segmentation is intended to help you optimize efficiency with your advertising investments. It is derived from the basic adage "you can't be all things to all people." Companies may target one distinct target market, or go after several different ones. Market segmentation allows you to target markets that either have different needs, want different benefits, or require different messages delivered through different media. In essence, segmentation overcomes the inability to impact all possible customers with one advertising campaign or message.
The most traditional segmentation strategy is demographics. This is identifying particular customers based on shared traits, such as age, race, gender, marital status, income, education or occupation. This approach allows you to design messages for a prototypical customer and figure out what he watches or reads. Lifestyle segmentation is another approach, where you target people with shared hobbies and interests. Geographic segmentation is used by companies with broad audiences located in particular local, state, regional, national or international markets. Behavioral segmentation emphasizes customers with similar usage rates or benefits requirements.