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Product Differentiation

Last edited: Aug 22, 2022 Published: Dec 6, 2019

Brands that understand the power of product differentiation know how to set what they sell apart from the competition. Product differentiation is a marketing and sales strategy that highlights what’s unique about a product’s features and benefits in an effort to gain more attention and win more business.

Mixpanel Team

Why Product Differentiation Benefits a Business

When you’re in a competitive industry it’s easy for your products to get lost in the sea of selections. Product differentiation is what helps your business stand out and get noticed.

The #1 goal of product differentiation is to increase sales. The marketing strategy works by pointing out what makes a product a better choice than the competition. It highlights that the product has everything the competition has but with a little something extra. This, in turn, can build brand awareness as the company’s product becomes known for its distinguishing feature.

Value, whether perceived or actual, is another major benefit of product differentiation. If done correctly, the points of differentiation can be a value add in the minds of consumers. Value is one factor that can convince consumers to select a product even if it isn’t the cheapest option.  

Product Differentiation Categories

There are countless ways to differentiate a product, but product differentiation generally falls into one of three categories:

Vertical Differentiation – Vertical differentiation involves differences in quality that can be quantified. For example, which cell phone provider has the most coverage.

Horizontal Differentiation – Horizontal differentiation is directed by personal preference rather than price or quality. With this category of product differentiation branding plays a huge role. One of the best examples, is Coke vs Pepsi.

Mixed Differentiation – This can be a blend of vertical and horizontal differentiation, and it includes numerous product differentiation factors. 

Product Differentiation Factors

What makes a product different is unique for each company, however, there are a number of common factors that can differentiate a product:

Price – This is one of the most obvious product differentiation factors. In most cases, price applies if your product costs less than the competition yet offers comparable quality.

Quality – The quality of a product can also set it apart, particularly for expensive products that are considered an investment.  

Appearance – For virtually all tangible products, appearance is a factor. However, the importance of how a product looks isn’t equal across the board. 

Brand – Branding and product differentiation are symbiotic. One supports the other. A recognizable brand can differentiate a product and product differentiation can make a brand more recognizable.

Reliability – When consumers absolutely need a product to perform reliability is a top priority. In the automobile industry, this is a premier product differentiator. 

Special Features – A relatively common, everyday product can be differentiated by adding a special feature. You may remember from our points of parity vs points of difference overview that Angel Soft did this by adding fragrance to the tubes of their toilet paper rolls.

Customer Support – Customer support is more important to consumers than many companies realize. It can make a real difference for products that are more technical or require some sort of assembly. 

Location – Being the local option can be a differentiator if all the main competitors are national chains.

How to Differentiate a Product

Product differentiation is a simple concept that can be difficult to execute. Time and effort need to go into identifying unique qualities that are compelling to consumers. This can take up a lot of resources with no guarantee of a return. Fortunately, there are tools and methods that can improve your chances of finding the right product differentiation points.

Finding Your Points of Product Differentiation 

Even though you’ve developed a product from the ground up, the differentiating factors may not be obvious. And what your team considers a product differentiating factor may not resonate with the target market. 

So how is a business supposed to find points of product differentiation? 

Consumers are one of your best resources for finding differentiation points. Marketing research can help you tap into what consumers really want and need out of a product. Consumers can share their experiences and opinions of a product through an online survey, interview or focus group. For comparison purposes, you can have participants provide feedback on a competitor’s product as well. 

You can also tap into user behavior analytics to discover what customers find most useful or intriguing about your existing products. Analytics is highly beneficial because you’ll see how customers actually interact with a product. 

The customer service department is another resource for product differentiation. Customer service doesn’t just field complaints. They get to hear a wide range of feedback, including what customers like and enjoy about a product. The customer service team may even hear reasons for why a customer chooses your product over a competitor. 

Convey the Differentiation

Once you’ve gathered information and determine what makes your product different it’s time to put that knowledge to use. 

It starts by incorporating the product differentiation points in your marketing. The marketing team can use messaging, CTAs, headlines and even visuals to convey the points. They can highlight all the points in a single marketing campaign or highlight each point in its own campaign. The latter option may prove to be best if you have numerous user cohorts that respond to different points of differentiation.  

The sales team will also play a role in conveying product differentiation. They need to understand why the product differentiation points matter, how they are used by the marketing team and how to explain the advantages of the points to customers. 

Examples of Successful Product Differentiation

Successful product differentiation isn’t easy, but when a company hits the mark it’s highly effective. Below are a few companies that get product differentiation right.

Ulta: Price and Customer Service Product Differentiators

While many brick-and-mortar stores are closing, Ulta is continuing to expand. The beauty retailer has set itself apart by offering products for every budget. You can find drug store brands a stone’s throw from luxury products. In doing so, Ulta has become an equalizer where all customers feel welcome.

But Ulta is also innovative in its value-add incentives. There’s always a coupon for $3.50 off purchases of $15 or more, the free membership program comes with perks like a gift during the customer’s birthday month and there’s a very generous return policy.

Customer service also works in Ulta’s favor. The company had 1,174 locations at the end of 2018 where customers can test products and get personalized recommendations from Ulta associates. The company gets high praise for making every shopper feel taken care of and their superior customer care has built a loyal following. 

Whole Foods: Location and Brand Product Differentiators

Whole Foods is a poster child for product differentiation. The company was the go-to organic grocer long before many consumers knew organic was an option. It made Whole Foods a thought leader, and they still enjoy that designation even though most chain grocers now carry organic food. 

What Whole Foods did was align the brand with the green lifestyle before it was trendy. Today, the Whole Foods brand is synonymous with wholesome living.

Whole Foods also elevated what a national grocery store chain could be. Their stores have artistic outdoor seating areas, living green walls and education spaces where customers can learn to cook the food they buy. Each store is unique, influenced by its location and offers an experience that goes beyond grocery shopping. 

Chipotle: Quality Product Differentiator

In many cities across the U.S., there’s no shortage of restaurants selling Mexican food. Chipotle understood it needed a product differentiator if it wanted to compete with inexpensive Taco Bell fare and local mom-and-pop Mexican restaurants. 

The product differentiation strategy for Chipotle was quality. Chipotle has positioned itself as a higher standard of fast food. The company promotes its ability to serve up food fast while still hand-crafting each order. They can also boast that some of their ingredients are sustainably and locally-grown at nearby family farms. It’s what Chipotle calls “food with integrity”. A recent commercial campaign features Chipotle cooks talking about how they take pride in crafting meals with fresh, healthy ingredients that taste better. 

The companies above prove product differentiation can be a powerful strategy for winning business and creating a loyal customer base. It’s not a project that’s completed quickly, but it can have a lasting impact on your brand and bottom line. 

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