What does product differentiation involve?

Product differentiation involves the process of distinguishing a product from others in the market. This is done through unique features, branding, quality, design, or other characteristics that set a product apart from its competitors. By creating a unique identity for their product, companies can attract specific customer segments, enhance customer loyalty, and often command higher prices. This differentiation can lead to a competitive advantage, allowing businesses to stand out in a saturated market.

The other options, while related to business operations, do not accurately capture the essence of product differentiation. Reducing product prices may be a strategy to gain market share but does not differentiate the product itself. Creating similar products is counter to differentiation, as it would imply offering indistinguishable items. Increasing production capacity can help meet demand but does not inherently relate to making a product unique. Thus, the concept of product differentiation specifically focuses on how to distinguish a product from others for competitive advantage.