Differentiation Strategy: 5 Ways to Differentiate Your Product

Differentiation strategy is a business strategy that distinguishes a product to help it stand out from competitors and more efficiently engage a target audience. Product differentiation can involve highlighting your product’s lower prices, specialized features, and better quality to gain brand-name recognition and market share. If you target a niche market, you have a focused differentiation strategy. If your target market is wide-ranging, you have a broad differentiation strategy.

A unique value proposition (UVP) is a statement that clearly expresses your new product or service’s distinct selling points to potential customers. Crafting such a statement is often the first step in developing a differentiation strategy.

A successful differentiation strategy can mean the difference between growth and failure for a new business. As Virgin Atlantic founder Sir Richard Branson puts it, “There is no point whatsoever in starting a new business if it’s much too similar to another business that’s already going. They will be able to drive you out of business.” In going up against a much larger airline (British Airways), he knew that he had to offer something BA couldn’t. “If all you’ve got, say, is lower fares, they’ll be able to just drop fares on your routes and you’ll disappear," he adds. "So you’ve just got to differentiate yourself.”

Without a solid differentiation strategy, your business might flounder in a sea of larger, more experienced competitors. For Richard, this included injecting humor and style into his brand. “Once you’ve got the plane, make sure that you create the absolute best airline in the world and make sure it’s completely different to the bigger competitors—and that’s what we did with Virgin," he says. "We were a much, much smaller company than British Airways. And we had to come up with fun, sometimes outrageous ideas to try to get the Virgin Atlantic brand on the map.”

Consider the following types of differentiation strategies:

1. 1. Features: Competitors’ products may have similar functions, but unique features and design elements can help set yours apart. You can conduct market research to identify customer needs and how your product can fill them with particular product features. Or, you can draw on your unique experience, as Richard did with Virgin Atlantic. “As somebody from the entertainment business, coming to the airline business, I knew that people want to be entertained,” he says. “They want to have fun. They want to enjoy their experience when they get on a plane. . . . We decided we should have manicurists and masseuses working on board. We even gave free flights to entertainers and comedians and jugglers, in order to keep people entertained until we had seatback videos. If people could get off a Virgin experience and they’ve had a really great time, they'll be back again and it’s the fun, right thing to do.”
2. 2. Marketing tone: Branding your product and establishing a distinct style for its advertisements can help your company stick out from the crowd in a saturated market. Finding your voice is another way to distinguish your company’s products, whether it’s a playful, humorous, or professional tone. Learn how to build a memorable brand.
3. 3. Pricing: Pricing is one of the most important factors customers consider before going through with a purchase. Shoppers often compare the prices of similar products, so low price points can help entice buyers. If other brands charge higher prices for their goods, your lower cost can help reach target customers. However, in some cases, charging the same (or even a premium price for high-quality products) may be a better choice than adopting a cost leadership strategy. Learn how to choose the best pricing strategy for your business.
4. 4. Quality: Buyers will look at product reviews and rely on word-of-mouth, so boasting high-quality services can make your company stand out. “The advice that I would give people who are competing with a big giant is you’ve got to be much better than them. If you’re smaller, you’re more nimble, you’ve got to use that nimbleness to make sure you’re better,” Richard says.
5. 5. Service: Great service can generate customer loyalty, and prospective customers may be willing to pay more or take a chance on a smaller business if they have excellent customer relations. Learn how to ensure a good customer experience.

A focused differentiation strategy is an essential tactic for several reasons. Consider why entrepreneurs and long-standing businesses alike invest in differentiation strategy:

1. 1. Customer loyalty grows. Targeting a differentiated product to the correct market segment can successfully build brand loyalty. When customers find a product that fits their needs, they are more likely to make repeat purchases.
2. 2. Customer satisfaction can improve. A generic strategy may not clearly inform buyers about the product. Targeted marketing—and details about what makes your service stand out—can set clear expectations about the functionality and benefits of your unique product.
3. 3. Distinction attracts the right audience. A unique product that meets specific customer needs will make your goods and services more palatable to buyers.
4. 4. Specificity builds up brand image. Finding what makes your product design distinct and celebrating those qualities clarifies your brand image and makes it more magnetic.

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