Product Differentiation

Fast food companies such as McDonald’s, Taco Bell, and KFC are all an example of monopolistic competition. Monopolistic competition is characterized by (1) a relatively large number of sellers, (2) differentiated products (promoted by advertising), and (3) easy entry and exit from industry (McConnell p.445).

Fast food companies fit into monopolistic competition because consumers perceive that there are non-price differences among the competitors’ products, there are many producers and customers in a given market, and the producers have a degree of control over the price of the products (Wikipedia). Fast food companies have the ability to set there own price without losing customers because of product differentiation.

For example, pretend you are the owner of a Chinese restaurant in the food court of the mall. Also in the food court are several burger joints and a Mexican restaurant. There are several things to factor when determining the price of your food. You know you can’t charge $15 a meal when a consumer can get a burger, fries, and drink for $5. But you also know you can markup your meals to $6-$9 because you are the only Chinese restaurant in the mall. Although your product may be slightly more expensive, people may be willing to pay the extra few dollars if they are in a particular mood for Chinese. This is an example of product differentiation (Worth Publishers).

Because fast food restaurants are competing for the same consumer, these fast food providers go to great lengths to convince the consumer that it has something special or unique to offer. This is called product differentiation. It would be easy to differentiate between Taco Bell and McDonald’s, but it may be harder differentiating between McDonald’s and Burger King. These two companies turn out similar products, but they have slightly different physical characteristics, and proclaim special qualities (real or imagined) for their products. If you are Burger King you may offer a dollar menu or special incentives for eating at their restaurant as opposed to McDonald’s.

Product differentiation doesn’t just apply to the product itself. Marketing also plays a key role in product differentiation. By marketing a product to make it seem different from a competitor is important in a company setting itself apart from competitors.