Horizontal product differentiation is characterised by the tension between the desire to weaken price competition and increase market share. Product differentiation is a marketing strategy applied by many firms in the contemporary society. It is used to showcase the differences between various products. The strategy aims at making a certain good or service more attractive than others in the market. It makes the item appear better in eyes of the consumers by contrasting its unique qualities with those of the competitors. Horizontal and vertical are the two types of differentiation common in the global market.
In the former, the distinctions between products cannot be identified easily in terms of quality and taste. It means that two items may be of the same quality but the difference can be in the shape, the colour, or any other feature. Horizontal differentiation can help a company to capture a large market value. The reason is that products only vary marginally (Tremblay & Polasky 2002). Many firms report a tension between the desire to weaken price competition and increase their share in the market. Most of the horizontally differentiated products are associated with high competition in the market.
The reason is that all the items appear to have the same qualities to the consumer. It is up to the buyer to decide on the best product to take. Several things are taken into consideration when making a choice between such products. They include, among others, price. The pressure to weaken the prices of the items is aimed at reducing the level of competition in the market. In addition, a reduction in prices is aimed at increasing the market share. The reason is that many consumers will be attracted by the low value of the product.
With regards to horizontal product differentiation, it is important for managers to take into consideration different organisational costs. They should also consider how these costs affect the price of the final item. Organisational expenditures include those associated with production and administration. In most cases, horizontal differentiation is cheaper to the firms. In their attempts to reduce price competition, many business organisations discourage the improvement in the quality of their products. In horizontal product differentiation, addition of features is not necessary.
The only important this is to make sure that the appliance serves the recommended purpose. According to Melitz and Ottaviano (2008), advancements in quality may lead to a rise in the production costs. The firm may need to transfer such expenses to the consumer. As a result, the price of the commodity will increase, which is undesirable (Rosenkranz 2003). The reduction of the prices in horizontal differentiation is relatively small. Among other things, the manufacturers are aware of the fact that the reduction in prices is likely to attract many buyers. A rise in the number of buyers would translate to a higher market share.
As already indicated in this paper, horizontal product differentiation is based on the assumption that the reduction in price is likely to play a major role in increasing the market share of the firm. In this essay, the author will analyse the case of two companies involved in the production of electronic appliances in the global market. The two are Samsung and Life’s Good (LG).
The desire to weaken price competition and the aspiration to increase market share in horizontal product differentiation has implications on corporate decision-making processes. Most of these effects are associated with the specification of the products. According to Lee (2005), product specification critically analyses the information regarding an item. The details relate to, among others, the product’s application standards, its design requirements, images, and the manufacturer. Firms that employ horizontal product differentiation do not usually have middle managers (Melitz & Ottaviano 2008; Lee 2005). What this means is that all the operations regarding the entity and the production process are controlled by high-level managers.
The companies are also referred to as flat organisations. The firms have to cut administration costs by ensuring that the number of employees is minimised. Corporate decision-making happens at different levels of the entity. When it comes to differentiated goods and services, the right decisions need to be made with regards to product specification. The aim of such decisions is to properly guide the consumer. The economic theory argues that absolute price difference matters. According to the theoretical framework, relative prices are not that important. When making decisions, the management must taking into consideration consumer preferences. The preferences should be factored in before considering the change of prices.
Product specification must pay attention to consumer preferences. In light of this, the management has to communicate with the potential buyers to know what they want and how they want it. In horizontal product specification, the quality is not the major focus of the item. Some of the consumer preferences that should be given priority when manufacturing a product include its colour, design, and shape. The three items are related to fashion. Fashion entails the outer appearance of a product. It does not necessarily have to do with its quality. In context of the real world industry, Samsung and Life’s Good (LG) are two perfect examples to use (Lee 2005). The two companies are well-known in the production of different electronic appliances. For the purposes of this study, the focus is on the refrigerators distributed by the entities. The items are some of the products the two specialise in.
Both companies continue to use horizontal product differentiation to attract consumers. The improvements in the designs of the products by the two entities have played a role in increasing their market share over the years. A case in point is the prices of LG and Samsung refrigerators. Samsung 255 Litre fridge freezer costs $999. On its part, LG 240 Litre costs $749. The general difference can be seen in the price and the size of the products. However, there are other differences that include colour and shape (Armington, Emch & Heyer 2006).
The two companies are industry rivals who have created customised product specifications to ensure that their items suit the preferences of their customers. Some of the customised specifications include the inclusion of trays and small compartments inside the refrigerators. The addition of the new features could have made the companies incur additional charges in the production process. However, the main idea behind making these changes is to ensure that the consumers do not go far when trying to satisfy their needs. To reduce the competition in the market, the manufacturers lower their prices and improve the appearances of the products. For example, LG used to produce white refrigerators for the consumers.
However, after market research, the management noted that many people prefer other colours other than white to curb the dirt effect (Ando 2006). As a result, the company embarked on the distribution of products of different colours and designs. The move attracted a large market share. The increased share was mainly because the firm offered cheaper prices compared to other companies. The consequences of the corporate decision-making process prompted the company to update its products to match the prevailing trends. The move enhanced customer satisfaction. On its part, Samsung has features that are similar to those found in the products distributed by LG. However, the company does not command a large market share because of the high prices of its products.
The management of the two companies have been forced to employ marketing tactics that are aimed at helping them become famous to the public. The decision of making the electronic appliances available to consumers has played a role in increasing the market share enjoyed by the two firms. However, price has been the influencing factor. For example, LG has been able to minimise its operation, production, and administration costs with the aim of ensuring that it commands a large market share through reduced prices. Samsung, on the other hand, has also acted to minimise its costs. However, production cost still remains high, thus the higher prices (Fontagne, Freudenberg & Gaulier 2006).
To beat competition in the industry, decisions of reducing the costs associated with the manufacturing process have to be made. The management of LG has changed some specifications of the refrigerators to capture a large market share. Some of the new specifications include single door refrigerators, side by side products, and top mount coolers. On the other hand, Samsung has new specifications that include the French door and side-by-side. In addition, the company has a 4-door flex in its new products. The firm has also diversified the colour of its products to include stainless steel, stainless platinum, black, and white. However, some of the new specifications in Samsung, such as stainless platinum, have forced the company to increase the prices of the products.
The objective of such increases is to protect it from losses. The use of stainless steel in the production process does not affect the refrigeration properties of the company in any way. In the end, LG and Samsung companies provide the same refrigeration services. The only difference between them is the price of the products. Most consumers will prefer purchasing the cheaper items (Leahy & Montagna 2001). Horizontal product differentiation in LG and the desire to emasculate the price of its products has helped the company to beat competition in the industry. It has also helped the company to increase its market share in many regions of the world.
In conclusion, managers should consider the prices of items when making decisions regarding horizontal product differentiation. The reduction of administration and production costs can play a major role in reducing prices when compared to other companies in the same industry. Customer preferences must also be taken into consideration if a company wants to increase its market share. The specifications of a product arrived at by the management should cover the needs of the customers (Leahy & Montagna 2001). The inclusion of new conditions is expected to increase the market share. The new specifications should not lead to an increase in prices, making the product more expensive compared to similar items in the market.
References
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