There are several ways in which a firm producing any product can gain a competitive advantage. Differentiation is one of the ways by which a company can increase the demand of its products without decreasing the price of the product.
Product differentiation usually starts with market segmentation. For each of the target segments appropriate changes are made in product design and features incorporated that differentiates the product from similar products manufactured by other firms. Differentiation does not involve substantial changes in the features of a product. The changes can in most cases be considered cosmetic in nature or involve small changes in the product's characteristics.
For example if a mobile phone company identifies two market segments for its products, one consisting of young people in the age group 14-18 and the other consisting of adults. For the first group, the company could add more features like social networking applications and games. They could also add more colors and design the phone to look more attractive to the group of young customers. For the market segment consisting of adults they could add more applications for corporate use, design the keypad to make it easier to type with and other similar features that are more relevant for adults.