What Is Product Differentiation? How to Stand Out of the Crowd

Discover how to raise your product or service to the top of competitors.

Ben Bitvinskas

Co-founder, Atlasmic

What is product differentiation, and why is it important?

It can be a struggle to stand out in a world with thousands of unique value propositions, promises, and flashy marketing campaigns. Finding an advantage against your competitor can be much harder than you think.

This is where product differentiation comes in. Product differentiation is a tactic that helps you find your product’s competitive advantage and flush out what makes it unique, sets it apart from competitors, and what angle can help market it most effectively.

Why should you care about product differentiation?

Thanks to crowdfunding, hedge funds, and an abundance of investors, entry barriers become much lower. This is especially true for software. A service or a product is simply unlikely to gain traction without effective product differentiation.

Product differentiation benefits

Here’s what product differentiation brings to the table when growing your business:

Improved brand awareness.

Setting yourself apart and getting noticed in a crowd might not generate sales right off the bat, but it opens you up to a lot more leads and potential sales. On top of that, if you’ll be releasing another product in the future, having your brand recognized is a major help.

Effective, unified marketing.

Flushing out your key value proposition will help create consistent marketing that will resonate with your target audience.

Clear target audience and marketing channels.

Not only will product differentiation help you better understand who is buying your products, but it will also help flush out what channels are likely to be most profitable. This can range from picking the right social media platforms for marketing campaigns to finding the appropriate influencer that can plug or review your product.

The uniqueness tax.

If you’re selling a product that clearly stands out, fills a niche, and has solid company branding to back it up, you’ll be able to increase its price.

Get ahead of buyer ignorance.

Without effective product differentiation, your product’s function or value can be misunderstood by consumers.

Product differentiation risks

Every practice has its risks, and product differentiation is no different. Here are some of the downfalls you might encounter if your plan isn’t thorough:

Copycat marketing.

Few things are worse than starting up a marketing campaign highlighting your UVP and discovering your competitors with a broader reach did the same two days later. On top of that, you can unknowingly prepare a similar message to competitors and get labelled as a copycat. Be sure to do extensive research.

Consumer disappointment.

If you’re putting one UVP above all others, and a user receives a faulty product that doesn’t uphold the promise, it can lead to some serious issues. Even if it is a genuine accident, you need to get on damage control ASAP, as runaway word-of-mouth messages can spread like wildfire and ruin your reputation.

Product differentiation factors

Now that you have an idea of what product differentiation is, let’s cover some of the factors you can leverage:

Price.
This factor will be a major part of defining your target audience. An affordable product can cast a wider net, while a more expensive one can yield a higher average order value.
Quality.
A product can be positioned as a luxury or a household must-have. This factor can overlap with many others.
Durability and lifetime.
This factor defines how long a product serves.
Technical specifications.
Here, you can stress processing power, horsepower, and similar factors as with the smartphone example.
Features.
More features don’t necessarily make for a more attractive product. After all, you won’t buy a swiss army knife if you’re looking for a razor blade.
Delivery speed and convenience.
Here you can include features like next-day shipping and the delivery methods available.
Aesthetics.
If your product is made to look great, don’t let it go unnoticed.
Brand values.
If your product is carbon neutral, supports fair trade practices, or accessibility, make sure your prospects know it.

Different types of product differentiation

There are multiple kinds of product differentiation based on application and value propositions. Understanding which one is the right for your product is essential for successful market penetration.

Horizontal differentiation

Horizontal differentiation is arguably the hardest type to work with. It is common among soft drink manufacturers and similar products where you cannot present a truly unique quality of the product. However, here you can leverage your company values.

For example, if you and a competitor have a very similar product but your company employs Fair Trade practices, mentioning that can help sway customers your way.

Vertical differentiation

Vertical differentiation typically focuses on leveraging price. It’s about finding the right value for the price. In this case, if you’re aiming to market a cheap product as affordable yet reliable for the price point.

If you’re offering an expensive, high-value product, communicating the appropriate quality signals will help establish it as a sought-after item. Understanding your target audience’s purchasing power is key.

Mixed differentiation

As the name implies, mixed is often mistaken for horizontal differentiation and uses traits from both of the other kinds. A great example would be smartphones from different manufacturers that share similar technical specifications.

How to build a product differentiation strategy

First of all, when building your product differentiation strategy, you should involve your entire company. From engineers who know the product in and out, marketers who understand lucrative angles, and customer support agents closest to your consumers.

This process can and should take time. Let’s run through the basic steps to help you get started:

Send out a company-wide survey with a questionnaire. Include questions like “Who do you think are our competitors?”, “What is our strongest feature?”, “What gaps do you see in this specific market?”
Perform a qualitative analysis of the response, set up a mockup of what product differentiation angles you can employ. Compare these to competitor products and your past marketing efforts.
(Optional but strongly recommended) Conduct a focus group test with potential buyers to better understand what makes your message ring or miss the target.
Start preparing to implement your strategy.

Conclusion

Product differentiation is a strategy that helps your business find the best unique value proposition for your target audience.

It’s performed through extensive research of your own product, gaps in the market, and the needs of your target audience. Understanding this information will help you find the marketing angle that will grow brand awareness and generate sales.

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