Product differentiation refers to the process of creating a unique and distinct product or service that sets it apart from competitors in the market. This differentiation can be achieved through various means such as design, features, quality, technology, branding, packaging, or customer service. The objective of product differentiation is to make the product more appealing and attractive to the target market, thereby gaining a competitive advantage.

On the other hand, market segmentation involves dividing the market into distinct groups of consumers who have similar characteristics, needs, or preferences. This segmentation helps in understanding the diverse needs and desires of different customer groups and allows companies to develop targeted marketing strategies for each segment. Market segmentation can be based on various factors such as demographics, psychographics, behavior, geography, or lifestyle.

While product differentiation focuses on creating a unique product that stands out in the market, market segmentation focuses on identifying and targeting specific customer groups with tailored marketing approaches. Both concepts are important for companies to achieve success in a competitive market by understanding customer needs and preferences and offering products or services that meet those requirements effectively.