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GuidesMarket researchProduct differentiation: What makes your brand stand out?

Product differentiation: What makes your brand stand out?

Reviewed by

Hugh Good

Have you ever wondered how some companies manage to rise above the rest? Many brands are successful amid fierce global competition, regardless of their size or brand awareness.

Every year, new companies are breaking through and overtaking the competition. Others are spinning their wheels, wondering what happened. 

Every successful brand has a certain amount of product differentiation that sets them apart from its competition. Let’s learn more.

What is product differentiation?

Product differentiation is the process of setting your product or service apart from others by marketing a unique selling point. It nudges your customer to purchase your product over your competitor's.  

What makes your product stand out can give you a competitive advantage. This can include price points, service benefits, or catering to a niche market:

  • A lower price may be the impetus for a price-driven customer to buy

  • High-quality products may appeal to customers who had quality issues with other brands

  • Maybe your product is organic, sustainable, or a specific size, color, or material  

Designing and marketing a unique product or service increases your chances of success.

Who is responsible for product differentiation?

Many people believe product differentiation is a marketing task. While that’s partly true, every department can have a role in differentiating the product's unique selling points (USPs). 

In addition to marketing, product management plays a role in researching the competition and finding ways to make the product unique. 

Product management can work with engineering to include those design modifications or improvements to accomplish those USPs.  

You can involve other departments in creating, monitoring, and evaluating the factors that differentiate your product.  

Measuring product differentiation

Product differentiation has various dimensions. Price, product performance, and service are just three areas where you can make your product more appealing. 

Measuring product differentiation can be complex and subjective. Still, it’s not impossible. You can use customer research and observation to identify the characteristics that set your product apart.  

These approaches will ideally generate reliable, verified data to support your product differentiation hypotheses. 

For example, your hypothesis may be "Product XYZ is the most economical on the market."  

You can establish this by conducting price comparison research between competitors, verifying that your pricing is lower than equivalent products.

Some product differentiation is more abstract and harder to back up. If you claim your product is the most beautiful or the most luxurious, it’s difficult to prove these claims objectively.  

If you claim "Product XYZ is the most beautiful on the market" without evidence, customers and competitors could challenge your claim. 

Researching customer preferences within your target audience is the best way to understand how your product stands apart from the competition. It’s also a great way to back up any marketing claims you wish to make.

What are the types of product differentiation?

The three main categories of product differentiation are: 

  • Horizontal differentiation

  • Vertical differentiation

  • Mixed differentiation 

Each has advantages and disadvantages, so determining how to differentiate your brand will depend on your customer and their preferences.

Horizontal differentiation

You cannot measure horizontal differentiation objectively with quantifiable attributes like price or physical size. Instead, it’s the subjective preference of your customer.  

It’s like how some people prefer Pepsi over Coke or chocolate ice cream over vanilla ice cream. The look, performance, quality, and price point may be similar, but the customer’s opinion and preference are influential. That’s what horizontal differentiation is.

Vertical differentiation

Vertical differentiation is when customers make a choice based on an objective measurement, most often price. More premium ingredients, packaging, attributes, or associations may justify a higher price.  

This type of differentiation is easily measurable, as you can rank products from least to most expensive. 

Mixed differentiation

Often, customers use a combination of vertical and horizontal differentiation when buying, particularly when they need to put more thought into a purchase.

Before committing to a purchase, they can objectively consider the price and quality alongside their preferences, such as how something looks or feels.

How do you develop a product differentiation strategy?

Now that you understand product differentiation, how do you get started?  

Product differentiation always begins with researching your customer base or target market:  

  • Who buys your product?  

  • Why do they purchase it?  

  • How old is your target market?

  • How much money do they have?

  • Where do they live? 

  • How is your product better than your competitor’s?  

Get everyone involved! From product management to engineering, sales, and customer service, other team members may be brimming with the information you need. 

They may offer input about relevant customer service issues, complaints, and engineering processes that increase your product's desirability.

Take it a step further and identify additional opportunities to differentiate your product. This is an excellent opportunity to compile strategies for future improvements. 

Advantages and disadvantages of product differentiation

Regardless of your product, product differentiation is the reason your customers love your product. It’s why they continually choose your product over your competitor's. 

Establishing a successful campaign to differentiate your product has many advantages, including:

  • Boosting the bottom line: If your product differentiation is successful, you will gain more customers, garner repeat business, and make more money.

  • Allowing you to charge more: You can increase your price point due to your product’s additional benefits.

  • Adding loyal customers: When your campaign is effective, customers make repeat purchases and may purchase additional products because of brand loyalty.

Roadblocks you may have to navigate around include: 

  • Savvy consumers: They may only accept higher prices if they believe the added value is worth the new cost.  

  • Added business cost: Product differentiation requires continuous review of strategy and marketing attempts.  

  • Your competition may join in: As they become aware of your success, they may also attempt product differentiation, rendering yours less effective.

Examples of product differentiation

Many companies, particularly in the tech industry, use product differentiation to market their products. This keeps loyal clients returning for the newest, best items.

A strong example is Apple: Its iPhone continually offers upgrades that differentiate it with better range, camera options, storage, speed, etc.

Amazon differentiates its plethora of products with unparalleled service. A company that started by selling books has become a seller of millions of products by offering a large selection, third-party selling, and free and fast shipping.

A few years ago, no one would have considered paying for membership services such as Amazon Prime. Amazon's differentiation created this market, and it enjoys immense global success.

FAQs

What is a differentiated product?

A differentiated product has one or more factors that make it distinct or better than competitors. It could be a difference in price, quality, flavor, style, etc.

What is an example of differentiated marketing?

Differentiated marketing targets a specific consumer segment, caters to their purchasing preferences, and identifies and leverages the factors that distinguish one product from the competition.

What is Starbucks' product differentiation?

Starbucks successfully offers a product differentiation strategy with high-quality products and specialized services, allowing it to charge premium prices.

How does Coca-Cola use product differentiation?

Coca-Cola uses flavor to differentiate its products and has built a highly successful brand-loyal customer base. This allowed the company to increase prices, distribution, and its product range.

How is product differentiation different from market segmentation?

Product differentiation focuses on the product and how it is better than the competition. Market segmentation is customer-focused, breaking down a targeted audience into smaller, specific segments.

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