Product Differentiation: Everybody Is Looking for the Holy Grail
Borna, Shaheen, Akron Business and Economic Review
Product Differentiation: Everybody Is Looking for the Holy Grail(*)
The concept of product differentiation was formally introduced by Edward Chamberlin in 1933. According to Chamberlin:
A general class of product is differentiated if any significant basis exists for distinguishing the goods (or services) of one seller from those of another. Such a basis may be real or fancied, so long as it is of any importance whatever to buyers, and leads to a preference for one variety of the product over another. [2, p.g 56; emphasis added]
The above definition has been the source of confusion among researchers. (Sources of confusion will be discussed in the following sections.) Mathematical equations have been formulated and new systems of measurements invoked to explain the concept. But, the explanations are confusing and often irrelevant. Consider, for example, a recent article in the Journal of Marketing by Peter Dickson and James Ginter  on the subject of product differentiation. The primary objective of the authors was to clarify the current misunderstanding surrounding the terms "product differentiation" and "market segmentation" by "precisely defining and contrasting" the terms on both theoretical and practical dimensions. After offering a historical perspective of these terms, they conclude:
We can see now that the apparently inconsistent and confusing treatment of product differentiation in contemporary [marketing] texts is rooted in the differences between the views expressed by Smith and Samuelson and those of Shaw, Chamberlin, and Porter. [7, p. 3]
Smith  and Samuelson  had maintained that product differentiation results from the firm's promotion and advertising efforts. This group had also associated product differentiation with recognition of only one, rather than several, demand functions. The second group, Shaw , Chamberlin , and Porter , viewed product differentiation as depending on both physical and nonphysical product characteristics.
SHAHEEN BORNA is Associate Professor of Marketing at Ball State University.
(*) I am grateful to Professors Santoni, McClure, Cohehlo, and the two anonymous referees for their valuable comments on an earlier draft. My debt to Professor Julian Simon needs no special thanks. This research was partially funded by a summer research grant from the Office of Research at Ball State University.
The authors proceeded to formulate their own definitions of product differentiation and strategy options that these definitions suggested. Unfortunately, Dickson and Ginter , like many others, (1) not only failed to clear up the confusion, but they also compounded it with new definitions. They also resorted to superficial causes of confusion and failed to discover or uncover the "real" roots of confusion.
This paper has three basic objectives. One is to show that all redefinitions of product differentiation serve no purpose except to confuse the readers. The second objective is to argue that the cause of confusion is the faulty formulation of the concept of product differentiation by Chamberlin. It will also be argued that because of logical inconsistencies, it is impossible to formulate a "precise" definition of the concept of product differentiation. The third objective of this paper is to observe what the discipline of marketing will lose if we abandon both the term and concept of product differentiation.
The term "product differentiation" is an unclear one, and the confusion surrounding it is not just limited to the field of marketing. The following list provides the most popular among the many possible meanings of the term:
1. Low cross-elasticities of demand ;
2. Price elasticity of demand ;
3. Real or fancied differences in characteristics of competing products
[2, 9, 16];
4. Substantial expenditures on advertising ;