Would you want to wear normal blue jeans, eat only ramen every day or drive same-to-similar car styles? Clearly, the answer is NO. Each one of us is seeking something different than usual. Similarly, most customers are in search of differentiated products sold by the seller. 

Speaking of advertisement, it is an act of presenting or marketing a product, commodity, or service to the general public. Advertisement often focuses on showing the extra factor a commodity possesses that is missing from its rival company’s product. This is done to attract and stand out from the crowd.    

In this post, we shall talk about what role can advertising play with respect to differentiated products. Additionally, we shall also educate readers about the types of market structures.

1. What Does Differentiated Product Mean?

Product differentiation helps a company or a brand to be able to distinguish itself from the rest of the companies. This product diversification helps in creating brand loyalty and generating higher revenue.  

In simple language, differentiated product means that the product’s certain characteristics are different from the rest of the products available in the market. This makes it distinctive and unique. However, the basic fundamental features or usage of the product or service are the same. 

Additionally, a differentiated product is made in a way that is more appealing and desirable in the eyes of customers to enhance its sales. 

1.1. Key Features

• It helps illustrate that it not only has all the features that a similar product has in the market but also has a set of additional characteristics. 
• Differentiated Product makes the product look more functional. 
• It’s a great marketing strategy used majorly in a monopolistic market.  
• Competitive advantage is an additional benefit that the companies gain due to product differentiation.
• Some instances of product differentiation can be seen in its pricing, design, functionality, usage, performance, warranty, guarantee, marketing, and so on.

1.2. Example of Product Differentiation

Let us understand with the following illustration:

Company ABC (for example) introduced a Sunscreen. Now, there are tons of companies selling sunscreens. But Company ABC came up with a new idea of selling sunscreen in the form of a stick. 

“Sunscreen stick” wherein you can directly roll out the sunscreen and apply it on your face without messing up your hands. 

Now this additional feature gives an idea of being a hygienic product and mess-free application. This will attract various consumers. In this way, the company is selling a regular sunscreen but the differentiating factor is that the sunscreen is in stick form.

2. Advertisement

Advertising or advertisement is a medium to reach the mass public to seek their attention on a particular commodity or service. 

Furthermore, advertisements can either be in printed (newspaper, pamphlet, etc.) form or electronic form (television, radio, internet). 

Advertising is a marketing strategy used by vendors irrespective of their size. This form of promotion has been used for ages. With time and technological development, advertisements have changed massively. Successful advertising campaign plays a key role in all market structures especially monopolistic competition. 

There are various types of advertising patterns. For instance, Banner Ads, Native Ads, Video Ads, Audio Ads, Playable Ads so on and so forth. Choosing the right method of advertisement can either make your business successful or unsuccessful. 

2.1. Unveiling the Purpose

There are three prime purposes of advertisement, as stated below:

2.1.1. Inform

The major purpose of advertising is to inform consumers. It creates an awareness amongst the masses regarding the introduction of a newly launched product in the market. Along with this, it also shows benefits and additional features associated with the product.

2.1.2. Convince

Advertising tries to convince people. It makes people believe that the product being advertised is better than the other brands selling the same product. It also encourages people to switch brands.

2.1.3. Remind

Constant advertisements help people remember the existence of a commodity in the market. It also encourages people to buy a particular product or service.

2.2. Importance of Advertising

Advertising is of prime importance as it not only helps in enhancing the industrial position of the company but also helps you in attracting customers.

Right advertisement creates awareness among consumers and promotes healthy competition between rival companies. This results in developing and selling better quality products which has a direct impact on the quality of life of an individual.

Advertisement promotes salesmanship which creates employment opportunities. Additionally, it eliminates the middle agent which helps in reducing the price of a product to a certain extent. It also helps in increasing the market size.

Another advertising importance is that it assists in increasing the price to the prevailing market price.

3. Different Market Structures and Role of Advertisement

Before we understand the relationship between advertising and differentiated products it’s important to understand different market structures.

A market is a place where trading takes place. The seller sells its products and services while the buyer purchases them. Ideally, there are four categories of market, which are as follows:

3.1. Perfect Competition

It takes place wherein all the sellers sell the same products or services without any differentiated characteristics in them. In such a high degree perfectly competitive market, the buyers have complete and perfect information concerning the product and there is no scope for selling the same product at different prices.

Here the consumers are not interested in highly advertised brand names. Hence, reduces competition and the scope of advertisement is very low to nil. Any business can enter or quit the market without obstacles in a perfectly competitive market. An example of perfect competition is the farmer’s market.

3.2. Monopoly

In a monopolistic market, there exists only one controlling business organization that has control over the entire market. This seller at its discretion can decide the supply and prices of the commodity. A monopolistic market structure has characteristics of that of a pure market. Examples of monopoly markets are Railways, Google, and Facebook.

Hence, even under a monopoly market structure, the role of advertisement is very minimal.

3.3. Oligopoly

This type of market is constituted by many numbers of small sellers who are either selling the same or differentiated products or services. There can either be cutthroat competition amongst them in some market scenarios or no competition at all in another market. No one has control over another. A good example of an oligopoly market is the cold drink industry.

Due to such a high level of competition, the rivals make equal efforts to suppress each other. Additionally, the advertisement is also done fiercely to outdo one another to win a larger market share. Hence the advertisement cost is also high under the Oligopoly market structure.

3.4. Monopolistic Competition

Under this category of market type, there are many buyers and sellers. There are no such known restrictions on the entry or exit of sellers from the market. The monopolistic competitors compete with one another. Monopolistically competitive industries offer a variety and product differentiation to choose from along with various other rewards.

The rivals make equal efforts to attract customers. The products or services that the monopolistically competitive firm offers here are similar with little enhancement or differentiating factor. Examples constitute salons, restaurants, and hotel businesses.

4. Exploring Roles and Impact

As mentioned above under monopolistic competition various sellers are selling almost the same commodities with little differentiation in the commodity. Advertising and promoting that slight distinguishing factor from the rest of the available products plays an enormous role in increasing the supply of the commodity and earning economic profits. Let us understand better how advertising impacts monopolistic competition.

4.1. Key Points

• The primary intention of product differentiation and advertisement in a monopolistic market is to make sure that the market is controlled by these companies. This factor eventually has an impact on the pricing.
• Extensive advertising will not only make the public aware of the additional features of the product. But it will also tempt them to try it out. Thus greater product differentiation will result from the perceived differences.
• In the long run if due to aggressive advertisement, the customer is convinced that the differentiated product is better than those available in the market then in that case the firm can also ask for a higher price.
• Advertising may allow a company to sell either a more significant quantity or to charge a higher price than its marginal cost, or both, and thus help in increasing the profit margin of the company. In either case, it is a win-win situation for the seller.
• Advertisement either increases a firm’s perceived demand curve steepness (making it more inelastic) or increases demand for the firm’s product (moving the perceived demand curve of the firm to the right).
• If due to advertising the sales increase, it might lead to price reduction wherein the consumers benefit substantially.
• One must bear in mind that advertisement has its own cost. Though it helps in increasing the revenue for the firm. The firm should calculate the advertisement expenditure and the revenue generated through advertisement and if the profit is more than the advertising cost then it’s a fair deal. 
• Money spent on advertising differentiated products in a monopolistic market is seen as controversial in market-oriented economies. As creating differentiated products is already a costly affair and to top it off with advertising expenses is considered a socially wasteful activity.
• A market-oriented economy produces the greatest variety and product differentiation.

Bottom Line

To sum up, advertising does have a clear connection with the differentiated product. No one is interested in purchasing identical products. People are constantly looking out for differentiated products produced in the market.

Here comes advertisement that helps customers to learn different features of the products.

Advertising works in a direction that more customers make an informed decision. In short, advertisement tries to educate the general public regarding the products available in the market and what distinctive features they possess.

I hope this article is helpful in explaining the role of advertisement with respect to differentiated products.

Last Updated on March 17, 2024 by Sanjana