Product differentiation: what is it and how does it set you apart?

Most similar products are destined to compete with each other. In these competitive market conditions, thorough market research, user behavior data, and a strong product differentiation strategy are the keys to connecting with your ideal customers and building long-lasting relationships. 

Read on to learn what product differentiation is, why it matters for your business, and how to use it. Plus, get some tips and best practices to help you develop product differentiation for your own products and services.

What is product differentiation?

Product differentiation is the way a company distinguishes its product from those of its competitors. The goal of product differentiation is to ensure your products or services have a unique identity in the minds of your customers.

Strong product differentiation is what sets your products and services apart from the competition. The process of developing a good product differentiation strategy involves market analysis, user research, and the development of unique selling propositions (USPs), which are factors that make your product different from the competition. 

Organizations with a variety of offerings can also use product differentiation strategies to distinguish their own product lineup to build stronger internal brands and make each individual product stand out to its target audience.

Why is product differentiation important?

In today’s crowded markets, 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 or service over the alternatives—and to keep them coming back in the future.

How to gain a competitive advantage with product differentiation

As you define your product differentiation strategy, focus on these 3 significant areas to ensure you tap into your USPs and develop a competitive advantage:

Benefits

Benefits are the positive effects that customers can expect from purchasing your product or service. 

Remember, benefits are not the same as features. Features are what your product or service does; benefits are what your customers actually want. (As the famous saying goes: ‘People don't want to buy a quarter-inch drill. They want a quarter-inch hole.’)

To make your product stand out, focus on the benefits it delivers, as well as the advantages that come with them. Ask questions like:

• What pain points do users have?

• How does this product help them solve their problems?

• What additional advantages do people get from using this product? (For example, a time tracking app doesn’t just give users a record of where their time is spent—it also gives them greater visibility over their week so they can make informed decisions and prioritize their tasks.)

Target audience

Your target audience is the group of people who want your product. Take the time to figure out exactly what appeals to them by exploring questions like: 

• Why do they want this product or service? What problems are they trying to solve?

• How and where can they use it?

• How much are they willing to pay for it?

• How do they want the product to look and feel?

Once you know the answers, you can create tailored messaging and pick the right marketing channels to ensure your product connects with your ideal customers.

Competing products

Your competitors may seem like ‘the rivals’ but in reality, they can be of great help. They form the landscape that lets customers better understand what your product is—as well as what it’s not.

Consider questions like:

• How does your product compare to similar offerings? 

• Where does it stand out?

• What makes customers choose your product over the alternatives? 

When you align your product’s advantages to your target audience’s specific needs more effectively than your competitors, you earn their attention and their trust.

⭐ Pro tip: don’t just make assumptions—talk to real customers as part of your research. Use Voice-of-Customer capabilities such as user interviews to get in-depth insights and leverage AI-powered surveys to quickly start collecting feedback about what they love (and what they’d change).

Contentsquare has a range of survey templates you can use, or launch a custom survey instantly with the platform’s AI survey generator.

What are some key advantages of product differentiation?

There are a lot of compelling reasons to prioritize product differentiation—here are a few of the best.

1. Increased brand awareness

When customers think of players in your category, is your company at the top of the list? Or do they still struggle to understand what your product does?

Product differentiation helps you cut through the noise by clearly stating what your product does, who it’s for, how it solves users’ pain points, and why people should choose it over other options. Combine this with strong branding (like your logo, colors, look and feel, and tone of voice) and you’ll make a memorable impression on your target audience.

2. Deeper connection with your ideal customers

If you try to be all things to all people, you often end up being nothing to anyone.

Knowing what makes your product different enables you to position it more effectively so it appeals to the right group of customers. With product differentiation, you understand the priorities of your specific audience and can capitalize on them in your marketing and product roadmap. 

3. 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 3 types of product differentiation?

There are 3 types of product differentiation: horizontal, vertical, and mixed.

1. 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

2. Vertical product differentiation presents a hierarchy of desirability based on objective variations in factors like price, quality, and durability. 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: luxury car vs. budget car, designer handbag vs. high-street handbag, front-row seats vs. bleachers

3. Mixed product differentiation refers to differentiation based on a multitude of horizontal and vertical factors, including price, quality, brand reputation, and personal preference. It usually applies to complex purchases. Examples of vertical differentiation: which is a better deal for a specific consumer—buying a fully-loaded Chevy, or the cheapest Cadillac?

Where can I use product differentiation to my business’ advantage?

You can use product differentiation to unlock benefits at any stage of your business. 

Some ways you can differentiate your product (and the overall experience) throughout the entire customer journey include: 

• Improving the product quality

• Enhancing your customer service

• Offering training and certifications

• Providing superior post-sales support

Essentially, doing anything that your competitors are neglecting to do gives you a new opportunity to differentiate your product.

What are some critical factors of product differentiation?

Here are some of the factors that matter in a purchase decision and are used as differentiators:

• Quality: is your product of higher quality or unique value? Is it 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 consistent with the brand image?

• User experience (UX) and functionality: is the product easy to use and intuitive to navigate? Are your website and mobile experiences helpful or a hindrance? 

• Customer service: what types of support do you offer, and across which channels? How fast does your helpdesk resolve tickets?

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

• Support and training: do you provide tutorials, videos, help with onboarding, or other helpful resources for users to get more from your product?

• Customization: how much personal control is in the customer's hands? Can they adapt the product to their personal preferences?

What are some critical features required for product differentiation?

For effective product differentiation, you need a deep understanding of your users: how they behave and what they want.

To get these insights, you need to investigate user behavior and talk directly to your target audience. A powerful all-in-one experience intelligence platform like Contentsquare gives you comprehensive data about how your customers engage with your site or app, fuelling greater empathy and revealing what’s important to them.

Contentsquare’s capabilities include:

• Heatmaps, visual aggregations of where users scroll, tap, click, and move that reveal which elements capture their interest (and which don’t)

• Session Replays, playbacks of individual visitor sessions that show you exactly how they behaved on your site or app

• Interviews, that let you connect with your target audience to run user tests and conduct research

• Surveys, that let you quickly collect, organize, and action user feedback

Watch session replays to see how real users navigate your site, product, or app and understand what’s important to them

Combine these features with user segmentation to get even more granular and discover exactly how different cohorts use your product for stronger messaging and differentiation.

3 steps to develop a product differentiation strategy

If you’re ready to start your product differentiation initiative, here are 3 simple 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 list the benefits, advantages, and values your product brings to the table. Engage your entire product team as well as teams across the company (such as marketing, sales, and customer success and support) to contribute ideas and perspectives you might otherwise miss.

3. Identify new and underserved opportunities

Addressing true needs that no one else is focusing on will set your product apart from similar offerings in the market. Use qualitative and quantitative data—like session replays that reveal user behavior or user interviews that provide in-depth insights—to identify gaps you can fill and incorporate these into your company’s strategy and product roadmap to maintain a competitive advantage.

Use product differentiation to make your product stand out from the rest

There are a lot of different ways to approach product differentiation, but the most important thing is to use real user data and insights to make informed decisions. 

With a data-driven product differentiation strategy, you’ll truly understand what users want, so you can tailor your marketing messaging and product roadmap to highlight what makes your product different—and how it best fits their needs.

FAQs about product differentiation