Final answer:
Product differentiation is the process by which firms make their products seem distinct from competitors'. It involves variations in physical aspects, location, intangible attributes, and product perceptions. The process includes strategy development, implementing solutions, and understanding the significance of differentiation efforts.
Step-by-step explanation:
Product differentiation is a fundamental strategy firms use to distinguish their products from those of competitors. The competitive advantage gained through differentiation can stem from varying the physical aspects of the product, the location from which it is sold, intangible aspects of the product, and managing perceptions of the product. These distinctions are crucial for a company to establish a unique market position. When discussing the process of differentiation and positioning, we generally consider three key steps. Firstly, firms must develop a differentiation strategy that clearly outlines how their products are distinct. Secondly, a solution must be implemented to realize these differentiating factors, whether through design, technology or branding. Lastly, understanding the significance of these differentiation efforts is essential for ensuring that the desired market position is achieved and recognized by consumers. By focusing on these steps, companies can create differentiated products that stand out in the market, thereby capturing the attention of their target audience and developing a unique brand image.