Chapter 9.2, Problem 3R

To determine

To analyze: The ways in which product differentiation can be used to increase profits.

Answer to Problem 3R

In product differentiation, unique and valuable features of the products are highlighted to make it attractive for buyers even if the prices are higher.

Explanation of Solution

In product differentiation, the unique and different qualities of a product or service is being communicated to the customers so that it becomes more attractive than its other competitors.

It is completely in the hands of the suppliers to differentiate their products and services from other competitors. Many of the companies use it to their advantage to increase the prices of the products to maximize their profits. Companies often emphasize on the luxurious features of their product to make it worth their sale.

Luxury cars, for example, is a great example of increasing profits through product differentiation. There are several companies in the business of manufacturing of cars but only a few are in the manufacture of luxury cars. offering the cars at a relatively higher price than others. Despite this fact, these companies still enjoy a good customer base. It is because of the cars’ unique features that end up in creating a good customer base for the cars. Product differentiation often targets a particular market and focus on their benefits to enjoy sales. A good price differentiation approach would include products that are capable of doing everything the competitors’ products can and cannot do but at the same time, they have certain additional benefits to offer to their customers.

Economics Concept Introduction

Introduction: Through product differentiation, the unique and distinctive qualities of a product or service can be showcased to make it valuable for a particular targeted market.