Product management guide Product strategy What is product differentiation?

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What is product differentiation?

Product differentiation is the process of distinguishing a product or service from others. This involves detailing the characteristics that are valued by customers that make it unique. When utilized successfully, product differentiation creates a competitive advantage as customers view your product as superior. You may also hear it referred to as the unique selling proposition, which is the act of advertising or communicating your product differentiation.

Why is product differentiation important?

It is important for companies to stand out because there are hundreds of new products hitting the market every day. When faced with too many choices, consumers can be overwhelmed and often walk away rather than make a buying decision. That is why it is imperative to find a way for your product to stand out and be considered uniquely valuable.

Product teams strive to make it clear to all customers what their product offers and how it compares to the competition. If your company has multiple products, you also want to make sure each product has a clearly defined identity to eliminate confusion. Creating a differentiated product that appeals to your target market can help to build your competitive advantage over other brands.

One way to organize the thinking around your product is through the use of a business plan template. Templates can be used to help define your unique value, better understand buyers, and analyze the market — which are just a few of the key areas you need to define when planning how your product will stand out from the competition.

Business plan templates used for product differentiation

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 and let that drive your decisions on how to differentiate. Your product differentiation should arise after carefully researching the competition and should be part of a larger product vision.

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 their lives easier and better? For example, your product may be the only solution offering a mobile app that saves time from an activity that parents must do (but do not enjoy doing) every day.

Design

Does your product have a different design that distinguishes it from others? For example, your product is sleek and has a simple user experience, while your competitors’ offerings appear clunky and dated. This distinction may help customers connect with your brand. Think about the modern design sensibility of the Nest thermostat. Instead of copying the rectangular shape of other thermostats, the company opted for a simple circle with an easy-to-read, color-changing display. Another example is Strava — the run and cycling tracking app. It quantifies something that is hard to track (your workout data) while also building a social community through design. These fresh designs take on old ideas, help companies set their product apart, and gain a competitive advantage.

Mockups used to plan design improvements
Price

Is your product priced lower or higher than your competitors’ products and other products you offer? Your price should reflect the overall value that you offer. For example, 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. Ask 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? Do you offer some functionality that your competitors do not? Can users expect the product to last longer than other products? Your product’s competitive advantage may indeed prove to be of superior construction and dependability.

Customer service

The features of your product may be similar to others in many ways. However, you can differentiate your Complete Product Experience 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 by midnight may receive their package the next morning. This emphasis on customer service pays off — judging by the fact that 75% of their sales are reportedly from repeat customers.

Ultimately, the way you differentiate your products should not be an arbitrary decision or a reactive response to whatever your competitors are doing. Instead, your product differentiation should arise from a higher-level strategy of goals and initiatives specific to your product and your business.

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