The Ultimate Guide to Product Differentiation

The Ultimate Guide to Product Differentiation

In the increasingly complex world, brands are trying to figure out the best way to serve their customers. Capitalism has played its part and now we have dozens of products that provide the same solution.

This makes product differentiation all the more important. It differentiates a brand from its competitors using one or more single traits. At the core, both the products may function the same. But that additional feature really makes the brand stand out. Making customers choose one over the other. 

So, this blog post explains everything you need to know about product differentiation. It will serve as an ultimate guide that you can refer to from time to time.

Here’s what we’ll discuss!

  • Introduction
  • What is Product Differentiation?
  • Why is Product differentiation important?
  • How Competitive Advantage Works
  • Types of Product Differentiation Strategies.
  • Using Kano Model to Differentiate the Product
  • When Does Product Differentiation fail?
  • Successful Brand differentiation Examples

Product differentiation is a way for products or brands to differentiate themselves in a saturated market and gain an edge over their competitors; competitors trying to solve problems in a similar category. Product differentiation strategies could be implemented in both product and service parts of the business. As the user attention is growing thin, brands are developing strategies that could grab their attention. Product differentiation is one of those strategies.

The decision to differentiate depends on the market condition and where the brand lies in its growth cycle. Product differentiation is what gives brands the “Unique Selling Point”. Brands that have multiple products under their hood may also employ product differentiation strategies to avoid old product’s cannibalization.   

Product differentiation may look simple in the overview but has very complex parameters associated. The decision to differentiate a product does not lie with a single department. Although marketers are

held responsible as they are the ones positioning the brand in the market, product differentiation requires deeper involvement from various departments in the company.

What is Product Differentiation?

Product differentiation is the company’s answer to the question “Why should we buy your product over your competitors?” 

Product differentiation usually starts from the customer’s eyes. Meaning, the brand tries to solve a customer problem that no one else is solving. As the brand progresses in the growth cycle, the differentiation may get complex and can boil down to price, packaging, customer service or a particular feature of the product.

Product differentiation can happen at any stage in the growth cycle of the product. The newly added features could serve as a product differentiator. Your product could also eliminate some of the features or combine different ones to give its user a simple user experience.  

Product differentiation in marketing can serve as a company trying to educate its customers about the product. For example, a sports equipment company may open a portal to educate its customers about training and nutrition. Here the sporting company positions itself as someone who wants its customers to be healthy while its competitors may only try to sell the equipment. 

Why is Product Differentiation Important?

The market is getting increasingly noisy. The volume of similar products introduced in the market is enough to make anyone confused about the brands. An ordinary customer doesn’t have time to evaluate and research their every choice. Many times they go with instinct and what information is available to them at the time of purchase. This is where product differentiation comes in.

Product differentiation cuts the clutter and tells you exactly why they are better. It is important for your product to differentiate in any industry, but is essential in a crowded one. It tells customers why the product is superior and indirectly conveys that they care about the customer’s problem. 

The goal is to tell your customers that you provide something other brands can’t. That’s a competitive advantage.

How Competitive Advantage Works?

Competitive advantage is the driving force behind product differentiation. So it’s necessary to understand how the competitive advantage works. To create product differentiation as your competitive advantage, you’ve got to be clear about these 3 parameters.

Benefits of Your Brand

What benefit does your brand provide? It must be something that your customer can truly point out. They must exactly know ‘why’ they are buying your product. The ‘why’ will help you differentiate among the sea of competitors. You must be aware of all your product features and how necessary (or unnecessary) they are to your audience. 

The Target Audience

It goes without saying but you should exactly know who your target audience is. A product for everyone is a product for no one. The product differentiation you offer must align with your target customer needs and how you can make their life easier. By reinforcing this message you create a demand among your audience.

Know your Competitors

Product differentiation can only be done if you already know what is in the market. So you must carefully study all your immediate competitors and the benefits they are providing to the customers. Once you determine your own product differentiation feature, you need to articulate the benefit to your target customer. You must reinforce that message in every communication you have.

Types of Product Differentiation Strategies

There are 3 different types of product differentiation strategies. The categories depend on how a customer evaluates the product.

Vertical Product Differentiation

Vertical differentiation concerns distinguishing a product on measurable qualities. Example: Price, location, etc.

Distinct quality hierarchies exist within a customer’s mind where each competing brand is ranked based on the factor the customer is evaluating. Vertical differentiation drives demand for the product by indicating the perceived quality as better than its customers. The brand is clear on what its vertical differentiation factor is and it reinforces this message in every communication.

Horizontal Product Differentiation

Horizontal differentiation concerns distinguishing the product based on something which is immeasurable. Here the distinction lies with the customer and what they prefer while purchasing a brand.

For example, a strawberry ice cream is no better than chocolate ice cream in terms of quality, but a customer’s personal preference will determine what they would like to consume. The product differentiation can therefore also be packaging, delivery method, colour or shape of the product.

Mixed Product Differentiation

More complex purchases tend to have a mixture of both vertical and horizontal differentiation. For example, a person buying a  motorcycle may consider price as a differentiator (Measurable, hence Vertical). But they may also consider colour or brand as their differentiator (Immeasurable, hence horizontal). Each consumer choice is subjective and depends on personal preference.

Using Kano Model to Differentiate the Product

Choosing which feature to be a differentiator is never easy. The feature is chosen must be done keeping all your departments in mind. Since any part of the business could be your differentiator.

The Kano model is an approach to choosing a product differentiator on a product development roadmap. Product managers use the Kano model to prioritize potential differentiators by grouping them into categories. The categories vary from what could disgust a customer to what could delight them.

How Does the Kano Model Work?

Using the Kano model, the product managers pull out a list of features that could be used as a differentiator. The managers will then analyze these features based on two broad categories: 

  1. Customer Delight
  2. Implementation Cost
Customer Delight vs Implementation Investment

The Kano Categories

Using the Kano analysis, the product managers divide the features into 3 categories:

  1. Basic Features
  2. Delightful Features
  3. Performance Features

Basic features

These are the features you absolutely need in your product. Irrespective of whether they provide a competitive advantage or not. The basic feature is what forms the core of the product.

Delightful features

Delightful features can create excitement about your brand in the market. They can set you apart from the competitors and create buzz around your brand. The wow factor is what attracts the new customer base. The customer may not miss them if it weren’t there, but investing in those features tells how much you care about the customers. 

As the internal product team, you get to decide which feature can fall into the delightful category. The team also needs to evaluate the cons of introducing such a feature as it may also disappoint the current users. The delight feature can be added after customer surveys and feedback.

Performance Features

The performance features can give you a proportionate increase in user retention as you invest in them. As the users are expecting a certain degree of quality, the enhanced performance features indicate that you are improving as a product. 

When Should You Employ the Kano Model of Product Differentiation?

There are many reasons to include or not include a particular feature. But the kano model is employed in a situation where there is limited time, capital and resources.

This approach is useful in quickly deciding which are the basic features you must absolutely include, the performance features you need to invest in and the delightful features to lure in new customers. 

When Does Product Differentiation Fail?

Product differentiation is risky. Even with all the analysis sometimes it’s difficult to predict how customers would react to the new features. Here are some primary reasons why a product differentiation strategy might fail.

Differentiation with No value

It’s quite natural that customers will only be interested in features that can help them. Differentiation just for the sake of it is bound to fail. Product differentiation strategy should have customer satisfaction at its core.

Easy to Imitate

Differentiation strategy may fail if the competitors could easily copy or imitate the feature. A competitor with a wide distribution base can easily delight their customer with this copied feature before you even market your product.

Over Differentiation

Each product has a quality level that is perceived by the customers. The quality improvements must happen gradually over time without exceeding buyer’s needs. Over differentiation can take you away from your core audience as the product quality may exceed customer’s needs.

Failure to Understand Target Customers

Differentiation fails if the band has no idea what their customers consider as attractive or redundant. The differentiation must be done from the user’s viewpoint and not the company’s. 

Satisfaction with the Basic Product

This happens in a price-sensitive market. If the user is satisfied with a basic low-cost product, differentiation may drive up the price and exceed the customer’s expectations.

Example of A Successful Brand Differentiation Strategy

Product differentiation is difficult. In a world where we are constantly bombarded with new but similar products, carving out space in the minds of a consumer is no small feat. SO here we discuss a few examples of successful brand differentiation strategies.

1. Oscar Health Insurance

Healthcare is a daunting subject. When it comes to insurance, people are confused as to what plan could serve them better in the long run. This is where Oscar health insurance differentiated itself. They portrayed themselves as insurance companies with user-friendly access. They ditched the typical corporate look and designed a UX that looks inviting.  The “build your own plan” truly shines in customer’s eyes.

2. Huawei

Huawei entered the market as a low cost, high-quality mobile phone company. This strategy worked as people who couldn’t buy Samsung or Apple could easily opt for Huawei as their brand. The low-cost option made them acquire a huge customer base in a short period of time.

3. Four Quadrants Advisory

Most financial firms have investment limits as the differentiator. Meaning, that some of them only deal with large fund investors while others focus on small and medium-sized investors. But Four Quadrants Advisory went one step ahead in carving out a niche. They described their target audience only as dental practitioners. By defining a narrow niche they placed themselves as experts in dental practice financing.  

4. Build-a-Bear

Ordering soft toys online isn’t something different. But Build-a-bear brand catapulted when they provided an option of customizing your own toy. This made their brand extra special in the eyes of the customer and set them apart from a typical soft toy company.

5. Paul Smith

Paul Smith is a fashion designer from London who carved out a unique space for his brand by using his British heritage. The British flag throughout its paul smith clothing lines helped differentiate as someone who values their original heritage.

To Wrap It Up!

Today, the market is becoming highly user-centric. Your ability to sell is a reflection of your ability to listen to your customers. Product differentiation is the first step towards customer engagement and personalized experience. We hope this guide gave you all the necessary information related to product differentiation.