Product differentiation can also be used as part of a strategy to influence market conditions
and as a means of gaining competitive advantage over other producers in an
industry. If a firm can successfully differentiate its products in the minds of consumers,
it brings itself more market power. It becomes a price-maker in the sense that it can
increase its price without losing custom since consumers do not see other products as
competitors. Product differentiation influences both the firm’s costs and its demand.
Costs will rise since product differentiation through advertising or increased research
and development will incur real costs to the firm. At the same time the demand curve
will shift and it will become more inelastic. This means that price becomes less important
in a consumer’s decision to buy, and non-price factors assume greater importance.