Product Differentiation: What Is It & How Does It Set You Apart?

What Is Product Differentiation?

Product differentiation is what sets your products and services apart from competition in the minds of your audience. It’s how your offerings stack up against others your users may be considering. The process of developing a good strategy involves market analysis and the development of unique selling propositions, or USPs—factors that distinguish your product from competition. Organizations with a variety of offerings can also use product differentiation strategies to distinguish their own product lineup to avoid eroding internal brand territories.

Why Is Product Differentiation Important?

If you haven't noticed, today there’s an overwhelming amount of choices for almost everything. Product differentiation is critical to give your users valid reasons to notice, remember, and choose your product. To pay a substantial price for it. And then to repeat their purchase next time around. Simply put, product differentiation lets customers know what’s in it for them. Which brings us to…

How Do I Gain Competitive Advantage with Product Differentiation?

When you’re approaching a goal of product differentiation, there are three significant areas to focus on:

Benefits:

These are the positive effects that result from purchasing your product or service. Most companies are so proud of their features that they confuse them with benefits—which are what the customers actually want. Harvard marketing professor Theodore Levitt famously said: “People don’t want a quarter-inch drill. They want a quarter-inch hole!” (Taking this one step farther, advantages pay off your benefits….now you can hang your new flat-screen TV on the wall.) Smart businesses focus on benefits and advantages, while struggling businesses endlessly tweak features.

Target Audience:

These are the people who want your product. Take the time to figure out in detail what appeals to them: Why do they want it? How and where can they use it? Consider how the product looks and feels, where it's marketed, and perhaps most important: how much would they be willing to pay for it?

Competing Products:

These may seem like “the enemy” but in reality can be of great help, because they form the landscape that helps customers better comprehend what your product is, as well as what it is not. How does your product compare to similar offerings? Where does it stand out? When you can align your product’s advantages to your target audience’s needs more effectively than your competitors can, you win!

CTA: Watch our webinar to learn the “3 Rules behind the Most Successful Products”

What Are Some Key Advantages of Product Differentiation?

Increased Brand Loyalty. When customers think of players in your category, is your company at the top of the list? One of the best definitions of branding is “mental real estate.” This is prime territory you want to own by developing elements of your brand, such as language, logo, colors, look and feel, tone of voice, social media presence, etc.

Higher Price Points. People are not only willing to pay more for a premium offering, in some cases the price itself creates the premium impression. For example, contemporary Mercedes and Chrysler cars share many identical mechanical components. But replacement parts with the Mercedes label cost ⅔ more, which fulfills the expectations of both groups of owners. How can you use pricing, packaging and customer service to your advantage in positioning your products?

Refined Target Audience. Trying to be all things to all people is a recipe for mediocrity. The better your company does positioning, the better the product knows itself. And the more it will appeal to the right group of customers. In peoples’ minds, “Porsches are fast, Volvos are safe, and Jeeps are tough.” Each car brand knows the priorities of its specific audience and capitalizes on them. In what ways can your marketing process leverage your reputation and product characteristics?

Better Business Competition. When your product is perceived as premium, it keeps higher-end company. Being considered peer level with the best of the best (in both quality and price) is a worthwhile goal of product differentiation.

What are the Types of Product Differentiation?

Horizontal product differentiation is any distinction not associated with the product’s integrity or price. In this category substitutes or “parity products” offer consumers similar cost, features and quality. There is no ‘best’ or ‘worst’, so the decision to buy is made on personal preference or convenience.

Examples of Horizontal Differentiation:
Soda flavors, laundry detergents, economy class airline tickets

Vertical product differentiation presents a hierarchy of desirability based on objective variations in price, quality, durability, etc. While some personal preference comes into play, with vertical product differentiation there is clearly a way to rank choices from best to worst. 

Examples of Vertical Differentiation:
Chevy vs. Cadillac, steak vs. meatloaf, front row seats vs. bleachers

Mixed product differentiation refers to differentiation based on a multitude of factors, including preference, quality and price, and usually applies to complex purchases. 

Example of Mixed Differentiation:
Which is a better deal—buying a fully-loaded Chevy, or the cheapest Cadillac?

Where Can I Use Product Differentiation To My Advantage?

It’s possible to employ the benefits of product differentiation at any stage of your business. You can improve the product quality itself, enhance your customer service, offer training and certifications, and up the ante with superior post-sales support. Basically, doing anything that your competitor’s product is neglecting to do becomes a ripe field of opportunity.

What Are Some Critical Factors of Product Differentiation?

In no particular order of importance, these are the things that matter in a purchase decision:

Quality - Is your product of higher quality or unique value—more reliable, durable, well-designed and well-built than others in its field?

Price - How do your pricing strategies set you apart from the competition? (Keep in mind that price to value ratio is key—simply being the cheapest option is not necessarily an advantage.)

Features - Does your product do anything unique, like have exclusive functionality or product offers that bring extra value to customers?

Brand image - Do the elements of your brand convey likable qualities, such as friendliness and trustworthiness?

Design - Is your visual language congruent with the brand image?

Features/functionality - Is the product easy to use and intuitive to navigate? Are your website and mobile experiences helpful or a hindrance? 

Customer service - What tiers of support do you offer? How fast does your helpdesk resolve tickets?

Location - Are you available where the customers are, or do they have to come find you?

Support - Do you provide tutorials, live chat, help with onboarding, etc? 

Customization - How much personal control is in the customers hands?

What Are Some Examples of Successful Product Differentiation?

Esurance

Competition: Progressive, GEICO, State Farm, Farmer's, Nationwide, Liberty Mutual

Esurance was one of the country’s first online insurance companies when they sold their first policy in 1999—now they serve users in 43 states. Esurance’s value proposition is making insurance painless.

Esurance offers a differentiated product by using technology to make the insurance process simple, transparent, and affordable. They claim they were “born online and built to save.” Technology enables their customers to do things quickly and easily online or with a mobile app. Technology also helps the company operate as efficiently as possible, so they can pass lower prices on to their customers. Potential customers can get a quote in minutes, the average driver saves $462, and 69% of eligible claims get approved in just one day. 

By using technology, Esurance makes insurance simple, transparent, and affordable. And by using Heap, Esurance was able to pinpoint a simple fix for their password process that reduced monthly support calls from 33K to 2.5K,saving the company an average of $225K a month!

Crunchbase

Competition:  Apollo.io, Demandbase, UpLead, ZoomInfo, RocketReach

For millions of users worldwide, Crunchbase serves as a primary source of company, investment, and industry data by providing real-time information around funding, professional profiles, and trend analysis.

Their differentiation is making research easier to do in less time, with the promise of “Search Less. Close More.” By delivering accurate data reviewed daily and sourced from 200,000+ contributors, 2,000+ venture partners, and millions of data points across the web, Crunchbase has become the largest and most visited source for information about innovative companies and the people behind them. 

Heap gives Crunchbase the ability to view a holistic source of data for all their products and users, including Crunchbase and Crunchbase Data. Automatic data collection saves the team significant time and generates a complete dataset from which they can define stronger user personas, rapidly test and iterate on new product features, and build targeted marketing campaigns that better convert.

FightCamp

Competition:  Moov Now, Everlast & PIQ, Corner, StrikeTec

FightCamp is an interactive at-home boxing gym that brings high-quality boxing instruction and equipment directly to consumers. 

The company sells boxing equipment, including patented “punch trackers” that track your hands 1,000 times/second to build a performance profile based on the type and speed of every punch you make. The mobile app makes a catalog of boxing workouts accessible via subscription. 

FightCamp’s initial differentiation was being the very first interactive at-home boxing gym. Now they have to stay ahead of imitators who want to take the championship away! This is where they have turned to Heap in order to build a better customer experience. In addition to improving FightCamp’s trial and acquisition, Heap has changed the way the team works. Becoming a fully data-driven company has helped optimize their acquisition and retention strategies and increased revenue by 20%.

What Are Some Critical Features Required For Product Differentiation?

Automatic data capture is a critical feature (and one unique to Heap) that makes implementation easier, and allows anyone access to the data they need to analyze user behavior and make critical business decisions. Autocapture also makes retroactive inquiries possible. By studying user behavior to anticipate what’s coming next, you’re able to stay several steps ahead of the market and your competitors. If you don’t have this ability, you’re stuck with manually pursuing insights—basically attempting to guess in advance why your customers make choices...before they even do! (Read more about Autocapture.)

This is where Virtual Events capability becomes supremely useful, because you define them in your analytics tool instead of logging them from your codebase. Your automatically captured dataset lets you track events whenever you think of them, instead of planning them out ahead of time. 

Why Is Automatic Data Capture Essential For Effective Product Differentiation?

As well as knowing your product’s strengths, you need to see opportunities in the market that your competitors cannot. Only implicit tracking allows you to do this. A single javascript snippet captures all customer data from your app or site—every single click, swipe, form fill, pageview, and more—then tracks them all automatically.  100% of your data is available from the moment the snippet is added, events are tracked automatically, and data is searchable retroactively. There’s no need for expensive engineering time. No need to decide in advance what to track. Data science finds correlations and patterns in the data you weren’t even looking for—these are what we mean by INSIGHTS!

What Are Some Ways To Develop A Product Differentiation Strategy?

If you have yet to start on a product differentiation initiative, here are three basic areas to work on:

1. Understand the market your product serves. Map out who your competitors are, what products and services they offer, and the customer needs they meet.

2. Distinguish your product in this market. Now elicit the benefits, advantages and values your product brings to the table. Engage your entire team as well as teams across the company to contribute ideas and perspectives. Brainstorm any needs that are being overlooked, so you can….

3. Identify new and underserved opportunities. Addressing true needs that no one else is focusing on will set your product apart from parity offerings in the market. Look for gaps they can fill and incorporate these into your company’s strategic product roadmap.

It’s reassuring to know that you really can’t go wrong with your efforts, as there is no “official” correct way to approach product differentiation. While the end goal is consistent, the process will be different for every product, team, and organization.

Want to learn about Product-Market Fit? Read all about PMF in our complete guide!

How can Heap help with Product Differentiation?

The most important thing to acknowledge in efforts to understand our customers is that “We don’t know what we don’t know!” Surfacing unexpected “aha!” moments — finding truly unexpected relationships between behaviors and interactions — requires a data foundation that goes beyond what we consciously know to ask ahead of time. Without this, we tend to focus on what we want to see. A complete dataset protects against the “happy path” bias—prioritizing only the events and behaviors we want and expect to see. The gold is in the unknown—and Heap can help you dig for it.