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What Is Product Differentiation and Why Is It Important?

You have a new product your team is excited to launch next year. Awesome. You’ve picked the integrated product team, the product launch date, and maybe you’ve even started thinking through your product marketing strategy. But how much time have you given to thinking through your product differentiation strategy?

Have you thought through all aspects of why your product is different?

Or how you’re going to differentiate your product both internally and externally?

We’re going to walk you through each step and discuss why you should focus time on a product differentiation strategy. But first, here’s a crash course in product differentiation:

What Is Product Differentiation?

Product differentiation is the process of making your product or service more appealing to your target audience or consumer than other competitive products.

Yeah, doesn’t sound so simple, does it?

But with these product differentiation basics under your belt, you’ll stand head-and-shoulders above the rest a little more easily.

Why Is It Important?

Our world is noisier and more crowded than ever. You want customers to understand exactly what you are offering and not cause confusion between yourself and your competitors.

This comes only after careful consideration and study of what your consumers are looking for, what their problems are, and how your product is uniquely positioned to solve them.

All of this may seem straightforward, but it's helpful to go back to ground zero occasionally and really evaluate the "why" behind the "what." In this case, why is your product different from all others in the same segment?

By answering this fundamental question, you'll be able to see your product differentiation strategy as part of the bigger picture for your product launch and brand strategy.

Product differentiators are the key elements to how consumers perceive your product’s benefits and features over those of your competitors. At the end of the day, you want them to select you over all other offerings on the market.

Internal vs. External:

Before we dive into the main types of product differentiation, let’s take a quick peek at the difference between internal and external differentiation.

Internal Differentiation

This is how your product differs from similar offerings in your brand portfolio across product lines and verticals.

External Differentiation

How you separate your product competitors based on three types of differentiation: simple, horizontal, and vertical differentiation.

3 Types of Differentiation:

Now that we’ve made the case for why product differentiation matters so much, let’s take a look at three of the most common ways you can differentiate your products.

1. Simple Differentiation

Simple product differentiation is based on a number of different characteristics that very clearly set your product apart from the rest. This is the most basic level of differentiation and the easiest for a consumer to spot.

Think coffee pot vs. an espresso maker. They are both in the coffee-maker family, but each has very different features, and it’s obvious to see where the two products differ.

2. Horizontal Differentiation

Horizontal differentiation is based on a single product feature or characteristic, but consumers are not clear on quality because prices typically tend to be the same.

Going back to coffee makers–consider two coffee pots. They function the same way and their prices are pretty similar, but one might offer the option for automatic brew while the other may offer a cold brew option.

One isn’t necessarily superior in quality–they just offer two different functional features.

Look at your product and consider ways to call out its unique features and benefits that your competitors products don’t have.

3. Vertical Differentiation

Vertical product differentiation is based on a product’s single characteristic. Consumers are very clear on its quality and where similar products differ in quality. Prices will also vary greatly in vertical differentiation.

Think of the difference between a Mr. Coffee coffee pot and a Cuisinart coffee pot. Both are drip pots, they will both brew you coffee, but there is a very clear distinction in perceived quality and prices vary greatly between the two.

Consider your own product. What is its perceived quality in the mind of your consumer when compared to that of your competitors?

It’s easy to get excited about a new product internally, but it’s so important to slow down and think through about your product’s differentiators as early as possible. With a clear picture of what, why, and how product differentiation works, you’re fully prepared to take your differentiation strategy to the next level.

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