Final answer:
Product differentiation is a business strategy where a company makes its offerings stand out from competitors and can include elements like reputation and service quality to influence customer preferences. Defining a market narrowly or broadly impacts perceived concentration and relevance of differentiation strategies.
Step-by-step explanation:
The scenario described is an example of product differentiation, which is a strategy that a business can employ to make its products or services stand out from those of competitors. Product differentiation can happen through various means including intangible aspects such as a guarantee of satisfaction, a reputation for high quality, unique services like free delivery, or strong marketing efforts that shape customer preferences even when actual product features are similar.
A well-defined target market enables a company to tailor its product differentiation strategies more effectively, resulting in higher sales and less wasted time and effort on potential customers who are not interested in what the company offers. For instance, a brand name built up over many years can serve as a differentiator in the market influencing buyer's decisions.
Furthermore, the way a market is defined can affect the perception of product differentiation. A narrowly defined market can amplify perceived market concentration and differentiation, while a broadly defined market can dilify it, as evidenced by Microsoft's case with operating systems versus the broader computer software and services market.