What is product differentiation?

Product differentiation is a key part of your overall product strategy. It details what what sets your product apart from you competitors’ products. The product differentiation process involves discovering the characteristics of your product that your customers value and are unique to you. You can then use these characteristics to market your product.

Product differentiation is sometimes referred to as your product’s unique selling point (USP), though this term is more commonly used in marketing and sales. USPs can relate to features or functionality, the pricing and positioning of the product, or even the design.

Why is product differentiation important?

There are lots of SaaS products out there, and the only way you can stand out from the crowd is if you have a unique differentiator. You can focus on your USPs and the key characteristics that make your product valuable. 

A good product differentiation strategy has many long-term benefits:

  • You become an industry leader.
  • Your marketing will become more focused.
  • Your customers will love your product.

You become an industry leader

Industry-leading products have a unique advantage. They become the first product people think of for that particular product category. When you think of social media management for example, you think of Buffer or Hootsuite. When you think of chat widgets, you think of Intercom or Drift.

Creating a unique product that people value highly along with a sophisticated marketing strategy is a sure-fire way to become an industry leader. At that point, you won’t have to work as hard to find prospects — they’ll come to you. You won’t have to work as hard to convince prospects — they’ll convince themselves.

Ultimately, having an industry leading product makes growth ten times easier. Product differentiation is what will help you get there.

Your marketing can be more focused

If you have a product that’s exactly the same as competitors in your industry, then it’s going to be nearly impossible for your marketing to stand out. While it’s certainly true that a good marketing strategy can make up for a run-of-the-mill product, a far more effective approach is to make your product unique.

If you are one of five customer feedback products but yours is the only one that automates the process, then your marketing can focus in on that USP.

Focused marketing is far more convincing, and will make prospects sit up and take notice.

Your customers will love your product

Everyone in the SaaS world is talking about product-led growth (PLG). The idea behind PLG is that your product markets itself. Customers try your product out, love it, and stick around for more. They may even tell their friends about it.

For you to fully achieve PLG, your product needs to have something that other products don’t. Otherwise, what reason to your customers have to stick around? If every product in your category is the same, then customers will simply end up choosing based on price. The result is a race to the bottom, with everyone cutting costs until one or more of you collapses.

Product differentiation makes customers fall in love with your product. That means reduced churn, increased revenue, and rocket-fuelled growth.

How do you create a product differentiation strategy?

While the act of differentiating your product may seem simple, it actually requires a lot of research and analysis.

Every good product differentiation strategy has 3 steps:

  • Research
  • Define
  • Develop

Research

This is the most important part of any product differentiation strategy. It involves researching your competitors and thoroughly understanding the market that your product inhabits. You need to take note of what competitors offer, and what USPs (if any) they have. 

Check out their pricing page. This will often list their various features. Analyze their home page, ads, and landing pages to see which characteristics they want to draw attention to. If possible, try the products out for yourself and see what they do well, and where they fall short.

Next, you need to analyze the market. This means figuring out what your target customers are looking for. What are the characteristics they value the most? If you can, talk to your competitors’ customers to figure out why they chose their product.

This information will help you when you come to define your own product’s USPs.

Learn more about how to differentiate your product through competitive analysis.

Define

You’re now going to use the information you collected from the previous step.

You’ll hopefully know two things:

  1. What your competitors offer.
  2. What your target customers value the most.

This information is going to help you define your product’s unique characteristics. You should aim to highlight things that your competitors don’t offer, or what you do better, so you can differentiate yourself from them.

Start by creating a list of characteristics that your competitors don’t currently have. This could be features they don’t offer, it could be a gap in pricing tiers, or it could even be a design choice.

Once you have your list, you need to narrow it down once more. This time, you need to only keep the characteristics that your target customers value. If you know that they don’t care about price, take it off the list. If you know that the design of the product is important, keep that on.

Eventually you should have a list of potential USPs which you can use to differentiate your product. Now you just need to develop them.

Develop

Once you’ve settled on the product characteristics which will help you differentiate, you can add them to your roadmap. 

Some things, like increasing the price of your product, will be relatively straightforward to implement. Other things, like a complete UI overhaul, may take a bit longer.

Product differentiation is an ongoing process, so don’t worry about ticking all the boxes straight away. Take it one step at a time, and slowly but surely your product will be entirely unique.

Note that you should always be running through these there steps. The market is always changing, and new competitors will continue to crop up. You need to be aware of any changes and update your product differentiation strategy accordingly.

Examples of product differentiation

Let’s finish this article by taking a look at product differentiation in the real world…

Stripe

Now one of the most popular payment platforms in the world, Stripe wasn’t actually the first of its kind on the scene.There were plenty of similar platforms on the market. They all offered the same features: low fees, no-account-needed checkout, sales dashboards, etc.

So when Stripe came along, it needed to do something different. That something was an incredibly easy-to-use API. Simply embed a snippet of code into your site and you’re good to go.

This simple approach was Stripe’s USP. It was something that competitors weren’t offering, and it was something that their target customers would value. 

Stripe’s product differentiation helped them grow into an industry leader in the world of digital payments and fintech.

Hubspot

Hubspot wasn’t always the most popular marketing tool. When Hubspot launched, there were many similar products, including the giant Marketo. The issue that the other tools faced was that they were fairly difficult to get up-and-running. They often required dedicated IT team members to keep it working.

Hubspot decided to do things differently, giving their customers the ability to get set up in no time at all. Not only that, but their analytics and insights were far easier to understand and act on.

By focusing on what the competition was lacking, Hubspot was able to dominate the marketing automation industry.

Slack

Slack’s approach to product differentiation was a little, well, different. The popular communication platform was originally designed for internal use by a team of developers working on a video game. 

The team realized that there were lots of different project management and communication tools out there, each with different functionality. Skype, for example, was great for video calling. Trello was great for planning workflows. The issue was that workflows ended up spreading out across different tools and apps.

Slack’s unique approach was to bring every facet of communication together into one platform. They effectively took all the best bits from the competition and left behind the worst. Slack is now the fastest growing B2B product in the world, largely because of its unique offering to teams.

Everything you need to know about product differentiation

Here’s a quick recap of everything we’ve covered:

  • Product differentiation is the act of making your product unique in some way (features, pricing, design).
  • A unique product is more likely to become an industry leader. It makes your marketing more focused, and you end up with a product your customers love.
  • Start by researching competitors and seeing what they lack. Then learn what your target customers value the most. You need to focus your attention on where the two overlap.