Running a business requires building a competitive edge & highlighting superiority of your product/service.
In a competitive environment, you must strive to go the extra mile!
But have you ever wondered, in a sea of similar offerings, how can your product/service shine brightly?
The best way to stand out in the market is to differentiate your offering from competitors in your category.
As customers become more aware and selective about their options, it is your responsibility to demonstrate suitability of your product.
But how to differentiate your product & make it stand out from the ever-increasing competition?
Read on to find out how.
What is product differentiation?
At its core, product differentiation is a marketing strategy businesses use to distinguish their products from competition.
The ultimate goal of such a strategy is to highlight the unique selling points (USP) that make your product more appealing for the target audience.
Why is product differentiation important?
But why does product differentiation even matter?
Firstly, it is not about being different for the sake of it.
It is about strategically positioning your product in a way that appeals to your target group.
Product differentiation provides clarity to potential & existing customers as to why your product is better choice for them (in a sea of other options).
Product differentiation strategies also help in the long-term.
A well differentiated product builds a strong foundation for customer loyalty. When customers see how your product solves their unique & specific problems, they start advocating for your brand.
The most under highlighted impact of product differentiation is its ability to drive innovation in your business.
In a bid to keep the differentiation intact, your teams push the boundaries and keep your offering relevant as well as competitive.
Inevitably, you end up staying ahead of the industry trends & shifts in consumer behavior.
Types of product differentiation
Contrary to what one might think, product differentiation follows a structured approach. Below we look at the various types of product differentiation techniques:
- Vertical product differentiation
When products are differentiated based on clear, measurable factors resulting in an objectively ranked list – vertical product differentiation strategy is being used. Quality, price, performance etc can be such factors.
For example – to attract cost-conscious buyers, you may want to charge a lower price than your competitors.
Conversely, you may charge a higher price to demonstrate that your product is high-end.
- Horizontal product differentiation
A differentiating approach that relies on personal preferences rather than any measurable factors is referred to as horizontal technique.
For example, different colors of the same car. One color is not inherently better than the other, it just caters to different tastes of the consumers.
Goal here is to create a broader appeal for different customer segments.
- Mixed product differentiation:
A combination of horizontal and vertical differentiation is classified as mixed differentiation.
For example, two smartphones may differ in quality & price (vertical) but also offer different design & aesthetics (horizontal).
Mixed differentiation is useful when you are trying to target multiple market segments simultaneously.
Mind you, above is not the exhaustive list of product differentiation types. It is just indicative of a few well-known techniques at a very broad level.
Eight key product differentiation strategies
It is very easy to get caught in the trap of trying to ‘stand out’.
Instead, find out what is important to your customers. Does the existing competition in the space leave you with an opening or a gap?
This will give you insights into the customer perceptions in your product category & help you stay clear of solving problems that don’t exist.
For example, imagine you are going after the Enterprise content management market.
And you want to differentiate your product based on its affordability. But as you research your target audience & the existing players, you realise that affordability is not a concern for your potential customers.
Fundamentally, there are only a handful of ways product/service can be differentiated from its competition. We cover eight such key product differentiation strategies below –
- Quality: Create and deliver high-quality products, to help you establish a strong market reputation and increase sales.
At times, quality can be a subjective aspect & enumerating it accurately becomes a bottleneck. - Innovation: Coming up with advanced and unique features that distinguish your product from competitors relies on innovation.
While in theory ‘innovation’ sounds good, it is difficult to continuously ‘innovate as a team’. - Customer experience: Amazon is one of the prime examples here.
In this case – how you deliver your product/service, rather than what you offer, is often what differentiates you.
Exceptional customer service, such as quick response times or a strong brand tone, can help you differentiate. It also leaves an impression on users who interact with you. - Design: It involves creating visually appealing and user-friendly products that draw attention. Remember Slack?
You can differentiate your product and increase customer satisfaction by focusing on the user friendliness of your design. - Marketing and branding: Use this factor to highlight unique solutions, create relevant & appealing messaging, and establish a unique brand identity.
This factor helps you to establish a competitive advantage, attract specific customers, and increase customer loyalty and brand recognition. - Features: Instead of including every option, prioritize features that directly meet the needs of your customers.
Understand and analyze your ideal customer, address their pain points, and ensure that new features add value to enhance brand loyalty. - Pricing strategy: Business model innovation around pricing is an underestimated area for product differentiation.
There is more to pricing than just reducing the costs for sensitive customers or increasing them for going upmarket. - Packaging: It is the first point of contact between customers and your product.
Effective packaging communicates brand values, grabs customer attention, and has the potential to influence purchasing decisions.
While the list is not exhaustive, it does cover most of the possibilities. However, it is quite possible that the actual product differentiation is a combination of two or more such factors.
Benefits of product differentiation
The benefits that come with a well-differentiated product can help you succeed in the long run. Here are some of those key benefits –
- Meeting specific customer needs: Not all your target customers are looking for the same thing.
Addressing the unique needs & specific problems of your target audience is an obvious benefit of a clear product differentiation.
Product differentiation will help you connect with your audience at a personal level. - Creating a competitive advantage: By focusing on what sets your product apart, you create a competitive advantage.
This helps attract new customers & encourages loyalty among the existing ones. - Building brand identity: A strong brand identity is a result of crystal-clear differentiation.
Thus considering your brand’s vision, mission & value while designing the product differentiator is a no-brainer. - Pricing benefits: Depending on how you are positioning your product, the differentiation can support your pricing strategies.
You can decide to serve startups & SMBs with affordable pricing or go upmarket with pricing on the high end. Bottom line, you get to align your pricing with your product strategy.
Product differentiation strategy examples
In B2B space, it is comparatively easy to spot distinct differentiation approaches at play. Below, we explore a couple of such examples to clarify the concepts further:
Zoho: With affordability at its core, Zoho is a well-known brand all over the globe today. Although, they started with CRM – today they offer a kind of ‘complete business operating system’. Zoho products are positioned as affordable solutions, alternatives to more expensive products in its category – such as Hubspot, Salesforce. The lower price point attracts small businesses and startups that are just getting started with customer relationship management.
Notion: The all-in-one productivity platform has positioned itself as a leader in the User-friendly knowledge & task management tools. Due to its ease in getting started, it is extremely popular with individuals & small teams.
But the obvious trade-off is that mid-sized & larger teams find the product lacking in flexibility that diverse teams would require. Notion set out to create a platform with an intuitive and user-friendly interface and have continued to rely on that as a differentiator.
Best practices & tips to form your product differentiation strategy
- Know your audience: It all starts with knowing your audience well. Through surveys and analysis of customer feedback, identify what your audience values the most. This becomes your guide in product differentiation.
- Make your strength count: The differentiation you are trying to build should be sustainable. And that can only happen if you are building on your strength. For example, if your runway is short – pricing strategy focused on low-cost products can turn out to be problematic.
- Be clear & consistent: All your external facing channels should carry the same messaging. Be it marketing, sales or customer support. You cannot preach ‘Customer support’ differentiation in marketing but accept dismal performance by the support agents.
- Innovate continuously: Differentiation is not a one-time thing. Revisit your strategy periodically & adapt it to meet changing customer expectations.
Final thoughts
By understanding your audience, leveraging your strengths, and staying committed to innovation, you can build a differentiated product that stands rigorous tests of the market.
Don’t forget that product differentiation is an ongoing process. As markets evolve and customer expectations change, remain flexible in your approach.
Experiment & iterate, to continuously revisit & refine your course. That is a precursor to ensure that your product remains relevant and uniquely positioned in the minds of your customers.
It is time to put all your learnings into action.
Assess your current product offering, identify opportunities for differentiation, and start making the changes that will set your product apart from the competition.
