At its core, a product differentiation strategy is a form of marketing strategy that is designed to help your company stand out from competitors. It not only defines what makes your products or services different from rivals—it also explains what makes you a must-have when compared with them. Smart product differentiation strategies can create a competitive advantage in the eyes of your target consumer by helping you create the impression that your offerings are unique (and therefore worthy of commanding a premium).
“It's always been important to stand out in the marketplace, and it’s only becoming even more so in challenging economic times,” notes David Thomas, executive director of online programming at the University of Denver. “Customers don't tend to devote much headspace to different choices, and once people get an idea in their head about how they feel about a company, it can take a great deal of effort to get them to change their mind.”
Typical product differentiation examples often involve the case of solutions that set themselves apart by offering better quality, better service or an array of singular features or benefits. However, a wise business leader will note that innovation can come in many forms—and that finding success doesn’t always require you to reinvent the wheel from a conceptual standpoint.
Why a Product Differentiation Strategy Matters
So why does product differentiation matter? Simple, notes Thomas: “If you’re trying to compete with market winners—especially well-entrenched business leaders—it can be very expensive and time consuming to try to go head-to-head with them. Comparatively, it can be much more affordable and practical to find a way to do an end-run around them. If you are trying to break in or make an impact on any given space, the first question you may ask yourself is: What can I do that’s new or different to set myself apart from the pack?”
Product differentiation can take many forms. It could take the shape of something tangible, such as a product offering that provides more features, better performance or superior service when compared with rivals. Alternately, it can be more conceptual in nature, such as a solution that possess better styling, presentation or street cred than competitors. It may even be a direct reflection of your company’s mission and values, such as in the case of eco-friendly offerings or ventures designed to promote social good. Above all else though, a sound product differentiation strategy not only serves to help your solutions jump off the shelf at a single glance—it also helps inspire customer loyalty.
The importance of finding ways to stand out cannot be understated. According to 2020 surveys of 15,000 consumers in 27 countries by Salesforce, customers not only now put a premium on brand attributes like likability, empathy, and innovation. Six in ten say it’s now difficult for a company just to earn their basic trust.
Businesses hoping to stay competitive in coming months won’t just face rising competition to attract new clients. They’ll also face growing pressure to retain current audiences and remind shoppers of the value that they offer, even as the competitive landscape is constantly evolving and shifting. In the end, it all adds up to a growing need for businesses to both introduce new offerings and increase sales of current solutions to a client base that’s choosier and more informed about where it spends every dollar.
A smart product differentiation strategy can help set you up for success right out of the gate by cutting through the white noise and making a strong impression in the mind of your target customer.
Strong product differentiation strategies can help you keep attract new audiences as well as keep existing clients coming back for more. At a base level, they do this by helping you positively influence brand perception.
Designing an Effective Product Differentiation Strategy
Your product differentiation strategy may also sometimes be referred to as your USP (unique sales proposition). That’s because it challenges you to target a desired audience demographic with clear and convincing messages about what makes your solutions stand apart from your rivals. This means that designing a winning product differentiation strategy always starts by asking yourself a simple question: What makes you different? And as a follow-up: How can you quickly and effectively communicate this message at a glance or in a simple “elevator pitch” that fits in 10-15 seconds or less.
Designing an effective strategy doesn’t necessarily mean having to go all-in on research and development, or invest heavily in manufacturing and engineering. Oftentimes, you find success here just by brainstorming a clever marketing or sales angle around which to hang your company’s shingle. “You don’t have to be the first to invent the product—just the idea,” says Thomas. “After all, what does it mean to be ‘hand-crafted’ or ‘artisanal’ exactly—and look what it’s done to help uplift the sales of many brands. A good place to start looking for your key differentiator is to begin by examining the most problematic product or solution in your chosen space—then go about fixing it.”
Of course, you go about crafting your product differentiation strategy, it may help to note that a few sample dimensions around which many companies look to differentiate from rivals include:
- Affordability / Cost
- Customer Service
However, it’s also possible to differentiate at different ends of the spectrum of many of these attributes. Think of the many retailers that compete on low-cost items and the many that compete on high-cost luxury brands. Should you choose to go big and offer general audiences a predictable and uniform solution or instead promote more personalized service and offerings to a smaller, more niche market? Your challenge as a business owner is to identify the attributes that most define your brand and identify the audience that will be most receptive to them. Afterwards, you can then work backwards to define messaging strategies that split the difference.
While it often helps to incorporate today’s latest features and technologies into new offerings, there are other, equally-effective ways to attract and engage audiences as well. For example, by:
- Piggybacking on newsworthy and trending topics.
- Packaging and presenting your products and services in clever and creative ways.
- Adopting a more fun, innovative or offbeat attitude than competitors.
- Catering to the needs or smaller or more underserved audiences.
- Delivering superior or more individualized customer service and support.
- Emphasizing the promotion of social good and worthy causes.
- Partnering with other organizations to create positive change or unique crossovers.
- Conducting clever product tests and comparisons that set you apart from competitors.
Consider the case of bottled water: From a purely functional standpoint, products from any two given rivals are identical. But many firms continue to thrive in the marketplace by differentiating using creative bottle packaging and design or a clever backstory to leap out at shoppers from the shelf. Again, finding success with product differentiation strategies is all about how you choose to package and present yourself.
The Bottom Line: Make Yourself Essential
In a world of growing choice, your number one goal from a branding standpoint is simple: Don’t be a commodity. A smart product differentiation strategy can help set you up for success right out of the gate by cutting through the white noise and making a strong impression in the mind of your target customer.
In many ways, it doesn’t matter how unique you actually are—just how unique you’re perceived to be. Which means that no matter what kind of research and development budget you’re actually working with, success is often just a clever hook or catchy slogan away. True: If you’re not offering something for sale that’s essential, when things come down to it, you’re more easily replaced. But don’t forget, people prefer to do business with companies and brands that they like, and often, they’ll pay more for the privilege of doing so. Above all else, the key is to stand out from the competition, and create a meaningful connection with a customer.
“Your goal is to be attention-getting and singular, even if that means challenging shoppers to rethink the fundamental concept of your product or service or even the traditional way in which they’ve learned to use it,” says Thomas. “In a business world where it’s all too easy to overlook many solutions, the one thing you don’t want to be is boring.”
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