Malcolm Gladwell spoke at a conference in 2006 about differentiation of products. He spoke of a man, Howard Moskowitz, who asserted the notion that food companies need not find the “perfect Pepsi” but the “perfect Pepsis.” Moskowitz meant that the companies should not search for the perfect Pepsi that will satisfy everyone a little bit; instead, companies should create a range of products to satisfy a larger amount of customers. Not only would a larger amount of people be pleased, they would be more pleased with a Pepsi catered to them, instead of a Pepsi catered to the entire population. However, no one believed Moskowitz’s ideas until finally Prego hired him. This man revolutionized the spaghetti sauce industry. Before him, there was only one type of spaghetti sauce. After being hired by Prego, then Ragu, these spaghetti sauce companies decided to go for variety. Currently Ragu has 36 varieties of spaghetti sauce.
Mr. Campbell asked us to relate this video to what we’re learning in economics. Companies other than spaghetti sauce in this same way in order to try to win consumers. Companies selling basically the same product try to distinguish themselves from other producers. Companies use a tool called product differentiation to make their product more appealing. When Prego wanted to distinguish themselves from Ragu, they hired Moskowitz to make their product more appealing to the customers. Furthermore, if the two products have very similar prices, consumers have to decide based solely on the product, which is why companies use product differentiation.
The monopolistic competition market requires that companies compete over characteristics other than price. In a monopolistic competition, producers have very similar products, just as in the spaghetti sauce industry. Companies must, therefore, compete over something other than price. Producers may make their product seem better, easier to use, more environmentally friendly, etc. Product differentiation allows the consumer to better make a decision between similar products. This method of product differentiation is very important in the monopolistic competition market.