What is vertical and horizontal differentiation?

What is vertical and horizontal differentiation?

Horizontal differentiation refers to distinctions in products that cannot be easily evaluated in terms of quality. This stands in contrast to vertical differentiation, where the distinctions between products are objectively measurable and are based in the products’ respective level of quality.

What are the types of product differentiation?

The three types of product differentiation are vertical, horizontal, and mixed. A common example of vertical integration is when two products are similar but priced differently. However, if the price of both products was the same, one would be considered “the best” because of its perceived quality.

What is vertical product differentiation?

Vertical differentiation occurs in a market where the several goods that are present can be ordered according to their objective quality from the highest to the lowest. It’s possible to say in this case that one good is “better” than another.

Are differentiation and substitutability the same thing?

According to research conducted by combining mathematics and economics, decisions of pricing depend on the substitutability between products, the level of substitutability varies as the degree of differentiation between firms’ products change.

What is meant by horizontal differentiation?

Horizontal differentiation refers to any differentiation that is not associated with the product’s quality or price point. Instead, these products offer the same thing at the same price point.

Why horizontal differentiation is important?

Horizontal differentiation, between subjective preferences like design aesthetic and impression of the car brand, also plays a role in the decision. As with both horizontal and vertical differentiation individually, each customer will value the combination of these factors differently.

What is horizontal differentiation in an organization?

Horizontal differentiation begins when the company assigns specific job functions to specific people rather than having a few people performing all needed tasks. As the company continues to differentiate horizontally, it can organize by function, process, product, service, location or client.

What is the purpose of vertical differentiation?

Vertical differentiation involves finding a quality/price mix that will differentiate the brand from its competitors, that appeals to enough consumers and can be profitably implemented. A company can also use this strategy to differentiate between products in its portfolio designed to target multiple consumer segments.

What is the difference between differentiation and nonprice competition?

Points of Difference between Price and Non-price Competition In case of price competition the firm tries to distinguish its product or service from competing product on the basis of low price. Non Price competition involves promotional expenditures, marketing research, new product development and brand management cost.

What is horizontal price discrimination?

Horizontal product differentiation distinguishes a product based on one characteristic of the product; however, consumers are not able to distinguish which product has a higher quality.

What is vertical differentiation in an organization?

Vertical differentiation involves the installation of a “chain of command” among employees and managers. Horizontal differentiation separates workers by their assigned tasks, such as accounting, sales or computer networking.

Which is the best example of horizontal differentiation?

Examples of Horizontal Differentiation: Pepsi vs. Coca-Cola, bottled water brands, types of dish soap. In contrast to horizontal differentiation, vertically differentiated products are extremely dependent on price. With vertically differentiated products, the price points and marks of quality are different.

How can Vertical product differentiation be measured objectively?

Vertical Product Differentiation can be measured objectively by a consumer, for example when comparing two similar products the quality and price can clearly be identified and ranked by the customer.

Which is an example of vertical differentiation in banking?

Vertical differentiation, in this example, occurs whenever one bank offers remote access and the other does not. With remote access, it can spur a negative interaction between transportation rate and taste for quality: customers who have higher taste for remote access face a lower transportation rate.

What’s the difference between a vertical and a horizontal?

Girard Desargues defined the vertical to be perpendicular to the horizon in his 1636 book Perspective . The word horizontal is derived from horizon, whereas vertical originates in the late Latin verticalis, which is from the same root as vertex, meaning “highest point”.