|The following article by Paul Gray is an excerpt from 42 Rules of Product Management.
Differentiation is not enough. Discover how effective product managers are winning by making their products “better.”
In an environment of product proliferation and intense competition, product managers must do more than just differentiate. They must find ways to satisfy customer needs and wants in ways that are ‘better’ than competitive offerings.
Consider the case of hotel accommodation-a market crammed with competitive offerings that differ in pricing, amenities, location, service, and other more intangible factors. It’s not only competi- tors that seek to differentiate their products, but brands within a company as well. The Hilton Hotel family consists of no less than nine brands from Hampton Inn to Waldorf Astoria Resorts.
Customers are faced with an almost overwhelming choice. How do products differ? In what ways are they similar? Which one is the best product for me?
The concept of differentiation seeks to identify and highlight ways in which one product is different than others. The desired outcome is an understanding or recognition within your target audience that your product is different from competitor offerings.
Product managers need to go one step further. It’s not enough to be perceived as different. Successful differentiation requires that products stand out from competitive offerings by providing the greatest value to the customer. Product managers need to look at three areas:
· What customers want: Understand the problems before you design the solution. It’s important to hone in on your target audience and get to know what specific problems they are expe- riencing. What are the impacts of these problems? What would happen if the problems were removed? What would need to happen to reduce or remove this problem?
· What you’re good at: There may be plenty of valid problems out there in your target audience but these are irrelevant if you’re not able to solve these. There are plenty of examples of brands diversifying into new territory only to fail because they lacked the core competencies to be able to satisfy customer needs and wants. Do what you’re good at.
· Where competitors are weak: Even if you have identified valid problems and know that you have the ability to solve these, it won’t matter much if you’re entering a crowded marketplace where multiple competitors can do the exact same thing.
The intersection of these three areas is the best opportunity for going beyond differentiation to define, develop and deploy a product that is more likely to succeed.
In our hotel context, let’s look at very price sensitive, solo travelers in their mid-twenties. They might have grown out of sleeping in noisy youth hostels but not have the money or interest in splashing cash out on a fancy room. Our segment wants a bare-bones room-literally a bed and a shower for as little money as possible. This frees up their money to spend on eating out, hitting the bars, or going sightseeing.
EasyHotel offers a service for this segment. Their spartan rooms consist of a bed, a TV, and an en suite bathroom. No desk, chair, phone, mini-bar, gym, or pool. Rooms are not cleaned every day. It’s not all bad though. Their hotels are well located in places where tourists want to stay, and they’re incredibly cheap.
Few competitors can match EasyHotel’s offerings. Even budget chains of major brands have more frills and a higher price point. Youth hostels, B&B’s and independent hotels can’t match its consistent quality and model. EasyHotel’s proposition of low price with basic but consistent quality is doing well with new properties opening in Germany and Spain in 2010.
Successful differentiation depends on understanding your target market segment needs, defining solutions based on your ability to satisfy these needs, and developing and deploying products that meet these needs in ways that provide more value than competitors.