Let us assume you are in jeans business. Your company is already present in the premium and super premium segments. Now you are targeting a low cost value for money segment. Your company launches a new brand or extends (stretch down) an existing brand, depending on the decision your company takes. The new brand has been successful in establishing the category membership, your company name or the parent brand has helped this new brand to create a POD in its category. What should you do to ensure that the new low cost jeans range does not cannibalize your premium segments?
This question is relevant because your existing customers may perceive little difference in the two offerings. The answer is: create vertical differentiation between the two segment products.
Valentino Piana wrote in 2003, “Vertical differentiation occurs in a market where the several goods that are present can be ordered according to their objective quality from the highest to the lowest. It's possible to say in this case that one good is "better" than another”.
Usually, vertical differentiation occurs on one feature, apart from price; let us say quality along with price difference in case of our jeans example. Thus your company will have to ensure that the customer is able to see quality difference between the premium category offering and value for money category offering. It is not a rule that vertical differentiation applies to products where there is only one attribute. However, all other attributes should be same and constant (or nearly so) between the products.
Thus it is easy to see the difference between vertical and horizontal differentiation. Vertical differentiation takes place on one feature, whereas horizontal differentiation happens across many features.
This feature is useful when the brand manager wants to maintain a product line which caters to all the segments present. Though to avoid brand dilution, your company may choose to introduce a new brand altogether. Whether to introduce a new brand or stretch existing brand is an endless debate, and I leave it for your company to decide how you go about it… :D
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nice article.....a good attempt towards explaining, 'how to proceed when a premium brand enters a value for money proposition.' but the article raises more questions than answers.....
ReplyDeletetechnically speaking, usually through vertical differentiation we can create a difference in segments which is clearly perceived by target audience / customers and they can find out which one is a clear winner. whereas, through horizontal differentiation we can create differences between segments but customer cannot differentiate between which one is better (all are at equally perceived level)
Thanks Intrepid vox! A very good observation! Vertical differentiation is what Ankit has quite nicely dealt with in this article. Horizontal differentiation as i see is to create differentiation between products that compete with each other (correct me if i am wrong). The sole aim is to create a differentiation which helps customers choose one over the other. In the present world, when the market is cluttered with "me too" brands, differentiation is the only way in which a brand can be different and create its own space in the minds of the customers, though in this whole process you gain some and loose some..
ReplyDeleteRohit, perfect.....whatever you have said is flawlessly correct.....
ReplyDeletejust to make it easier for a layman,
Vertical differentiation: Its a type of differentiation which is 'absolute' in nature, means any two customers can find out which of the product is better (mostly done on quality aspects and seen prominently in a product line constituting of different products)
Horizontal differentiation: Its a type of differentiation which is 'not absolute' in nature, means two customers may have different perceptions about two products in same category but cannot accuse each other that their choice is absolutely better than the other (can be done on any attribute of the product, usually seen in a category fight)