Product differentiation can be used strategically by firms to deter new entry into their
industry and also to increase competitive advantage over existing producers. Product
differentiation refers to the degree to which consumers distinguish between products or
have preferences towards particular products. Product differentiation may be based on
real differences between products in their technical attributes or imagined differences
which are introduced through branding and advertising. Products do not actually have
to be different; they just have to be perceived as different in the minds of consumers. In
the case of homogeneous products like milk or petrol, for example, where technical differences
are small or even non-existent, product differentiation can be done through
branding. Some of the sources of product differentiation are: