Price discrimination and product differentiation both terms are used in the context of marketing; marketers by following both techniques try to ensure that they get maximum profit from the goods or services sold by them to consumers. However, there are many differences between the two let’s look at some of the important differences between price discrimination and product differentiation –
Price Discrimination and Product Differentiation Differences
Meaning
Product differentiation refers to that marketing strategy in which companies sells slightly modified product as compared to its competitors and that modification can be in terms of quality or adding additional features to the product and so on so that consumer purchases companies products over competitors products while price discrimination refers to that marketing strategy in which company charges different price from different consumers for same product or service.
Example
Example of product differentiation is when FMCG companies markets shampoos, hence one company markets their shampoos as anti-dandruff while another company markets their shampoos as anti-hair fall and so on. While an example of price discrimination is when multiplex charges lower rates for morning shows but their rates are higher for the evening and night shows or for that matter these multiplexes charge different rates on weekdays and different rates for weekends.
Type of Market Structure
Price discrimination is generally followed under monopoly market structure because in monopoly company is the price maker and they can get away with charging different prices from different consumers for same good and product differentiation is followed under monopolistic competition because under monopolistic competition company does not have complete monopoly however by doing product differentiation company can capture market share from its competitors.
Price and Product Features
In case of price discrimination companies does not alter product features in lieu of higher price, hence in the above case of multiplex a 2 hour movie does not become 3 hour movie for audiences going in evening shows while in case of product differentiation companies alter their products and then charge higher price for their products on the basis of company’s differentiated products. Hence for example in case of 2 mobiles having same features or specifications but if one mobile is providing fast charging support than it can charge a slightly higher price from its consumers due to an additional feature of fast charging.
Risk and Return
In case of price discrimination return is high as the seller is charging higher price for the same product but at the same time there is risk that consumer may altogether reject the idea of buying the product from the seller whereas in case of product differentiation return is moderate as seller has little pricing power besides seller has to invest money in modifying the product or adding features to product but at the same time risk is low as compared to price discrimination.
As one can see from the above that both price discrimination and product differentiation are different from each other and if you are in marketing field then you should know these differences because without knowing the difference between the two you can easily mistake in recognizing that whether the seller is following price discrimination or product differentiation for its product or service.