What is Product Differentiation? As Ian MacMillan and Rita McGrath wrote in their 1997 HBR article, Product Differentiation is “offering customers something they value that competitors don’t have.”
Steps to Product Differentiation
One of the most respected books on Product Differentiation is Differentiate or Die by Jack Trout with Steve Rivkin. They outline four steps to follow to achieve differentiation:
- Define the context and the competition. Start by figuring out what your customers want, or what they’re trying to achieve. Once you understand that, you can see which other products compete in that space.
- Find a differentiation idea. There are a few dimensions you can choose to differentiate on, including price, quality or features (detailed list below). Importantly, whichever direction you take, it should be congruent with the customer goal or desire.
- Be believable. The proof is in the pudding. You’ll need to back up your differentiation claims by delivering on your promises.
- Tell a story. Make sure you get the message out to your target market. If differentiation happens in a forest and nobody sees it, and nobody hears it… then it might as well have not happened at all.
What are the ways to Differentiate?
The sources of differentiation have often been grouped into five dimensions: Product, Service, People, Channels and Image. Given Service refers to customer care, delivery options and the like, and People refers to the people delivering those services and how they may be better trained or more courteous, it makes sense to group these two dimensions together and call them Experience.
Product – form, features, performance, durability
Experience – customer care, ordering ease, delivery options, staff demeanour, staff reliability, staff responsiveness
Channels – where the product is offered, distribution
Image – brand story, company culture, media stories, image
The types of Differentiation
If you hit the economics books, there are a few key terms that relate to the type of differentiation.
Vertical Differentiation: consistent features, but a clear ladder of price and quality. At the low end the product is cheap and simply works. At the high end, the product has a longer life or durability.
Horizontal Differentiation: the features vary and it may be difficult to objectively order the features. If vertical differentiation is about being better, or cheaper than your competitor, horizontal differentiation is about being different from a features or functional perspective.
Mixed Differentiation: A combination of vertical and horizontal differentiation which occurs in complex markets.
Last thoughts on Differentiation
Differentiation is at the heart of Product Management. You’ll be on the right track if you consider these questions:
- What do customers want, or what outcome are they trying to achieve?
- What does the competition offer?
- What can your business offer?
Your answers should help steer you towards solving a valuable customer problem in a way that your competitors can’t or won’t. If you do that, you’ll be setting your product up for success.