What is product differentiation?

What makes a product stand apart from the crowd? This is the fundamental question behind product differentiation, the process of distinguishing an offering from others in the market. You have to define the unique benefits of what you are selling and communicate these benefits to potential customers. You may hear some people refer to this as your unique selling proposition. The goal is not to focus on competitors but instead prioritize what sets your product apart and why customers should choose you.

Why is product differentiation important?

Buyers have more options than ever before. When faced with so many choices, customers can quickly become overwhelmed and may even walk away without making any purchase at all. This is why defining and communicating the unique benefits of your product is essential.

Strong product differentiation allows you to create a competitive advantage — your target market views your product or service as superior to what your competitors are selling. When prospective customers understand what makes your product different (and how it will solve their problems), they are more likely to be interested in trying it.

Product teams are typically responsible for defining what a product offers and distinguishing it from others on the market. One way to organize the thinking around your product is to use business plan templates. These tools help you define the unique value of your product, better understand and empathize with your customers, and analyze the market. Think about those key areas when planning how your product will stand out from the competition.

What are some ways to differentiate your products?

You do not want your product to be different just for the sake of being different. Instead, consider what matters most to your customers. Gain a deep understanding of who they are, what they want, and how you can solve their problems. When you truly grasp what your customers need, you can build a unique product that they love. You should also thoroughly research your competition so you know about the alternatives that are available and the benefits they offer.

Of course, you always need to take into account your overall product vision — the "why" behind what you are building. This will guide you as you determine how to best deliver value to customers.

Here are some of the main ways you can differentiate your product:

Benefits

What value can customers expect to gain from using your product compared to others? What problem is the product going to solve? How is it going to make people's lives easier and better? For example, your product may be the only solution offering a time-saving mobile app.

Design

Does your product look different or function better than others? For example, a product that is sleek and provides a simple user experience is more appealing than one that is clunky or dated.

Think about the modern design sensibility of the Nest thermostat. Instead of copying the rectangular shape of other thermostats, the company opted for a circle with an easy-to-read, color-changing display. Another example is Strava, the running and cycling tracking app. Its design allows you to track and quantify your workout data while also building a social community. When you provide innovative designs and interfaces, customers will be more likely to connect with your product.

Price

Is your product priced lower or higher than your competitors? The price of your offering should reflect the overall value that you provide. You can justify a higher price if customers recognize that your product offers unsurpassed quality.

This is how a luxury brand like Ferrari can command a top asking price for their cars. Too low of a price, however, and customers may not see your product as truly valuable.

Quality

Does your product simply work better than your competitors’ products? Can users expect the product to last longer than other products? Selling a product with superior construction and dependability can provide a strong competitive advantage. Take L.L. Bean, the clothing and outdoor goods company. Many buyers opt for their utility boots and recreation equipment because of the company's reputation for making durable products that last many years.

Customer service

Does your company offer a Complete Product Experience — including superior customer service? The features of your product may be similar to others in many ways, but you can differentiate yourself by assembling a stand-out support team and earning a reputation for being ultra-responsive to customers' needs, requests, and ideas.

For example, the #1 core value for Zappos is "deliver wow through service" and they succeed even though they do not always have the lowest price. A customer who orders shoes by midnight may receive their package the next morning. This emphasis on customer service pays off — judging by the fact that 75 percent of their sales are reportedly from repeat customers.

Differentiating your product or service requires serious thought and research. The way you differentiate should not be an arbitrary decision or a reactive response to whatever your competitors are doing. You have to consider the overall company strategy, the product goals and initiatives, and what your customers truly need. This is how you build an outstanding product that delivers real value to the people who matter most — your customers.

Product management dictionary
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