Product Differentiation: 3 Types of Product Differentiation

Product differentiation refers to a marketing strategy that highlights the unique selling proposition (USP) that makes your company's product superior to a competitor's product. Over time, differentiated products with unique value propositions can increase brand loyalty, justify higher price points, and help a brand stand out.

There are several attributes that can help make products stand out from the competition.

• Durability: While it’s often the case that customers gravitate toward the lowest-priced item in any retail sector, some specifically seek a high-quality product that lasts many years. These customers are willing to endure high prices if the product offers years of hassle-free ownership.
• Price point: A lower price can help win a wider market share as the product falls into more potential customers' price range. On the other hand, some customers associate a higher price with higher quality, so you can sometimes gain a competitive market share by raising prices.
• Novelty: Some customers see value in new products that represent something different or innovative. A product that is functionally the same as many others but designed in a fresh, innovative way may also attract new customers.
• Messaging: When two nearly-identical products share a target market, fortune often favors the one with a coherent product differentiation strategy. Clever messaging and product positioning based on careful market research may inspire more target customers to choose one product over another that is functionally the same.
• Availability: Sometimes the most important product characteristic is sheer availability. A product or service will have an inherent advantage when it is available in a specific geographical area, on specific days of the week, or at specific times of day that competitor products are not. By simply being available when a customer needs it, a product can leapfrog over the hurdles of marketing and price competitions.

There are two principal types of product differentiation used by companies and marketers: vertical differentiation and horizontal differentiation. There is also mixed product differentiation, which combines the two.

1. 1. Vertical product differentiation: Vertical product differentiation occurs when potential customers rank products based on quantifiable metrics such as the price point, number of five-star reviews, or delivery speed. They then choose a product or service based on that ranking.
2. 2. Horizontal product differentiation: Horizontal product differentiation refers to customers making subjective choices that have little to do with measurable metrics. For instance, a customer may compare two sweaters that are equally warm, ethically sourced, and priced nearly identically. However, one sweater is pink and one is purple, and the customer chooses the pink one for purely subjective reasons.
3. 3. Mixed product differentiation: In many cases, potential customers weigh a blend of measurable and subjective factors when making a purchasing decision. The aforementioned sweater shopper may consider an amalgam of price, durability, color, and availability in making a final purchase selection.

When conducting a competitive product analysis for your own company, use the following template to understand your offerings and how they might stand out to a customer.

1. 1. Identify your target audience. Decide who you are trying to reach in terms of age, nationality, gender, personal values, and location so you can tailor your product roadmap and marketing process accordingly.
2. 2. Research the competitors in your market sector. Research the product attributes of similar products to get a sense of what the consumer base is accustomed to. Take the time to assess why current customers are choosing a competing brand to understand what your target market values.
3. 3. Explore what makes your product great. Think about whether you can stand out on overall quality, price, durability, design, or constant availability. Think about why you, as a potential customer, would choose the product you're offering over other products.
4. 4. Identify what’s missing from the current marketplace. The marketplace could be missing items at a particular price point, high-quality products that will last for many years, or functional substitutes with fresh design elements. If you can figure out the nexus of missing product attributes and market need, you may have cracked what could differentiate your product from the competition.
5. 5. Design a marketing strategy based around your strengths relative to the existing market. Introduce your new product to the world with an angle toward its unique strengths. Hone in on a unique selling proposition that takes the best insights from your competitive product analysis to win new customers in a competitive market.

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