Product Differentiation: A Guide to the Do’s, Don’ts, and Companies that Get It Right

January 25, 2019

It’s not easy to stand out in a crowded market, but it’s necessary if you want your business to succeed. Product differentiation is a marketing and messaging strategy that uses your product’s characteristics to distinguish it from others that are vying for your audience’s attention and dollars. Sometimes referred to as the USP— Unique Selling Proposition—product differentiation helps create a competitive advantage by targeting a specific audience segment with a clear and persuasive message about how your product is truly different from (and superior to) anything else that’s available.

There are many ways a company can differentiate their product depending on the maturity level of the business, available internal resources and the nature of competition within the market. Overall, however, companies with a strong focus on innovation will find the best success with product differentiation. Commodity products don’t lend themselves to this approach for obvious reasons. But companies that have a roadmap that includes investing in research and product development will usually benefit from marketing around what makes their product unique.

A product differentiation strategy is also particularly valuable for the company that is just beginning to build out its brand. At this stage, they have not yet had the opportunity to establish emotional connections with the audience or earn the loyalty of customers. So, finding ways to instead establish uniqueness and superiority in comparison to competitors can be the best way to get a foot in the door.

The Upside – How Product Differentiation Can Help You Compete

There are several key advantages that a well-executed differentiation strategy delivers:

Grabs your prospect’s attention. First, and most obvious, product differentiation can help you stand out in the market by focusing on the features that set your product apart from your competitive set. By highlighting the things that make your product different, you set the stage for a conversation that gives you the upper hand right from the beginning.

Establishes your product’s superior value. A messaging strategy that focuses on your product’s unique features and attributes helps to create the perception that your product is the “real thing,” for which there is no substitute.

Takes the focus off price. Clarity about how your product stands apart enables you to avoid competing solely on price, a scenario that is often very challenging for new and growing companies. Highlighting how your product’s uniqueness delivers better value helps you justify the cost.

Creates brand loyalty. Ultimately, differentiating your product is an exercise in drilling down to the specific problem your product addresses and the specific way it solves that problem. Being able to clearly articulate and consistently deliver on this promise is a surefire way to create rabid fans who will stick with you and recommend your product to others.

The Risks – Where Product Differentiation Can Break Down

While there are many benefits to taking a product differentiation approach, there are some risks as well. Internally, there is the chance that you can differentiate your product too much either by going too far with a particular message or niching down so deeply that you exclude an important subset of buyers. If your differentiation angle is either too far out in left field or too hard to believe (as in, sounds too good to be true), it will fall flat with your audience. And messaging that’s too highly tuned to resonate with one particular persona will be practically invisible to everyone else.

In addition to the nuances of getting your USP right internally, there are also some external threats that can derail your product differentiation strategy:

Copycats: You have to be careful not to differentiate your product based on a feature or attribute that’s easy to replicate. Your point of difference should be something that is truly proprietary and/or something on which you can consistently innovate in order to stay one step ahead of the competition.

Price Undercutters: There will always be someone willing to charge less to steal your customers, and with globalization playing a big role in how many markets develop, there’s a pretty good chance that some competitor will find a way to undercut your pricing. This is why it’s critically important to differentiate on something other than price.

Customer Demands/Expectations: Even with more complex products, customers are always on the lookout for the Next Big Thing. It’s human nature to want the latest, shiniest object. For this reason, it’s important to avoid differentiating based on something that will become obsolete.

Ways to Differentiate

There are many different ways to differentiate a brand, but most options fall into one of the following five broad categories:

Features: Customers are generally willing to pay more for a product that not only solves their problem, but does so faster, more simply, or more economically than any other product. The trick to differentiating based on a feature is to do a solid cost/benefit analysis to ensure that adding the feature will be worth the investment.

Proprietary Technology: If your product includes a “secret sauce” that cannot—for technological or legal reasons—be duplicated, differentiating based on that aspect of your product can give you a strong competitive advantage. The proprietary element might be a customer-facing component or part of the development process. Either way, it gives your product an edge by being inimitable.

Performance: If your product can perform a task faster or in fewer steps or with greater accuracy, that might be how you set it apart from the rest of the pack. The trick to making this approach work is to be sure you can deliver on that promise. Customers won’t take it lightly if you break your promise.

Design: In the case of software products, design refers to UX. What is it like for users to engage with your product? What does the interface look and feel like? How intuitive are the workflows? Superior design that finds new and better ways to facilitate tasks can go a long way toward not only helping your product stand out, but also creating strong brand loyalty.

Customer Service: Finally, if your product doesn’t lend itself to any of the above categories, you might consider creating a stellar customer service as your USP. Sometimes, it’s less about the product than about the whole experience surrounding the product. Fast response, in-depth support, a vibrant community—these are all intangible aspects of your overall product experience that can make a big difference in how customers perceive and value your company.

Common Mistakes

On the flip side of the positive ways to apply a product differentiation strategy, there are also a few common pitfalls to avoid. Though some of these approaches might seem viable on the surface, a closer look reveals that trying to differentiate around these areas is rife with risk.

Quality: While some experts still say that it’s possible to differentiate based on product quality, in practice it’s an incredibly difficult thing to do. In most markets, the word ‘quality’ gets used so much that customers almost don’t hear it anymore. Also, it’s typically considered a mandatory, not a nice-to-have. Customers demand quality, so making it the central theme of your messaging can fall flat.

Empty Promises: While customers might expect quality as a matter of course, they are always on the lookout for a product that offers to deliver outstanding value and/or amazing results. Leading with bold claims about your product’s capabilities can be a great way to capture attention, but you need to be absolutely sure you can back those claims up. Nothing will kill your customer relations like a broken promise. Resist the urge to make unrealistic or unprovable claims, and provide proof whenever possible.

Price: Differentiating on price sets you up to have to compete on price rather than on value. While that strategy might work in the short term, it’s not usually sustainable. As we said earlier, it’s only a matter of time before someone decides to undercut your prices. At that point, if you’ve built your whole marketing strategy about having the lowest price, your back to square one.

Hyper-niche: While it’s beneficial to get specific about your audience, getting too specific can restrict you to a market that is too niche to support your business. Be careful not to inadvertently alienate potential customers by appealing too exclusively to a narrowly defined demographic.

SaaS Companies Who Differentiate Well

A strong product differentiation strategy is especially important for SaaS companies because the marketplace is fiercely competitive and always evolving. Finding that “one thing” that positions your product a step ahead of the rest can have a major impact on your company’s success.

Here are six well-known SaaS companies that have leveraged smart product differentiation strategies to great advantage:


Features | Performance | Design

When it was originally conceived in 2007, Dropbox differentiated itself by being the first of its kind—a user-friendly way to solve the growing problem of how to share files with colleagues. Its simple, drag-and-drop interface was immensely superior to the existing option of using FTP and local file servers. Building on that initial foundation, Dropbox increased their appeal and defended their leading position by adding features that used virality to expand their customer base and further engage their core users. By delivering a simple and effective solution that solved a very real need (almost before people knew they needed it), Dropbox established themselves as a giant in the cloud sharing services space.


Features | Design

Wrestling data isn’t something most people enjoy, but Datadog set out to make the task easier and more efficient. By combining features such as centralized infrastructure that enables data aggregation across all systems, apps, and services with a stripped-down and simplified user experience, Datadog delivers exactly what its users want—an easy and efficient way to get their job done. As Datadog’s VP of Marketing, Alex Rosemblat, has said, the company wanted to make it as easy to sign up for Datadog as it is to open a Facebook account—just a few clicks, and done. That’s the kind of user experience that can set you apart, especially in a complex space like data analytics.


Features | Proprietary Technology | Design

Expensify pulled out all the stops to deliver a solution for “expense reports that don’t suck.” They began with a simple and efficient receipt-scanning solution that provided the features needed to solve a very real problem for their audience of business people who hated filling out expense reports. Soon after their initial launch, they leveled up their game in a big way with their proprietary SmartScan technology, which completely changed the expense management process by making it entirely paperless. This innovation was so powerful, that employees started installing and using the Expensify app without employer permission. They liked the app that much. This product-led, bottoms-up approach to growth proved to be a powerful tool for the company, allowing them to raise additional capital and expand their team to meet the growing demand. In addition to smart features and innovative technology, Expensify also offered a simple and easy user experience paired with a freemium offer that made the solution almost irresistible. The intuitive interface provided a seamless and nearly effortless way for users to complete the formerly dreaded task of filing expense reports.


Features | Performance | Design

Slack has become the darling of teams who collaborate. Their always evolving platform delivers all the bells and whistles that busy, creative teams need: video chats, file sharing, and so much more. And to expand their feature set, Slack integrates seamlessly with more than 1,500 third-party apps, giving users almost limitless ways to collaborate and communicate. This wealth of tools and options drive performance that allows teams to get things done more quickly and easily than they could using email. The centralized and searchable collaboration space saves users time and effort at every step. In addition, Slack’s freemium approach and streamlined onboarding process make it easy for new users to get started.


Design | Customer Service

While software that allows users to create and launch surveys, quizzes, and other form-based content may seem like a commodity, Typeform has managed to differentiate themselves with a brilliant combination of design and customer service. On the design side, this freemium product lives up to the promise on their homepage, “Easy to take. Easy to make.” In addition to being beautifully intuitive, the Typeform user interface is also built around creating an engaging and human experience. Everything about the brand speaks to this aesthetic. Their blog is called “A Little More Human.” On the customer service side of things, Typeform is highly focused on customer success because virality is the brand’s primary growth driver. To support the viral loop, Typeform invests heavily in retention (because happy customers create new customers). There are six teams working to ensure customer success: support, education, customer experience, customer outcome, sales and operations. Every one of these teams is focused on delivering the best customer experience and success possible.


Features | Design

ZipRecruiter became the #1 rated job search app by giving its users innovative features that make a difference in the real-life experience of looking for a new gig. Job applicants can “apply with one tap” for quick and easy resume submission, and can use the “know where you stand” feature to be alerted when an employer has reviewed a submitted application. Sometimes, however, the features you leave out or remove are just as important as the features you launch. Going against the grain of their top competitors, ZipRecruiter actually removes a feature if users don’t use it frequently. By cutting out complexity that doesn’t directly deliver on solving user pain, they have created a product that their customers truly love.

Four Steps to a Solid Product Differentiation Strategy

If you’d like to create your own product differentiation strategy to emulate the success of companies like Dropbox and Slack, you’ll need to get to the bottom of some really big questions about your product, audience and market fit. This will require an investment of time, but the process itself isn’t really all that complicated.

Assess the Marketplace and Your Competition

First step is getting the lay of the land so you know what you’re up against. This means getting a firm handle on what other products are available and how they are positioned in the market. Spend some time reviewing the marketing materials of your closest competitors. Visit their websites, read their ads, see what their thought leaders are saying in articles and on social media. See if you can define the following for each competitor:

      • How do they describe their product? What terms and phrases do they use? Do they fit into an existing category, or are they trying to create their own?
      • What do they stand for? If you had to pick three words to associate with the product, which three words would you choose?
      • What are they promising? What value do they claim to deliver? What unique attribute or outcome are they flaunting?
      • Which features and benefits are they highlighting? Are there certain bells and whistles that they talk about more than others?
      • Who are they talking to? Are they addressing a specific audience? Do they customize their language and topics based on certain demographics or segmentation?
      • What is the brand personality? Are they quietly knowledgeable? Irreverent? Authoritative? Highly technical? Straightforward? Humorous? What is the product “voice” like?

Identify What Makes Your Product Different and Craft Your Message

Keeping the competitor context in the back of your mind, your next step is to uncover what makes your product different from the rest of what’s out there. What is the one thing you can do better than anyone else? How are you solving a problem faster, more simply, or more efficiently?

Once you’ve figured out how to differentiate your product, you need to articulate that value in your brand’s unique value proposition (UVP)—a simple, short statement that explains the value your product delivers. The key to getting this right is to be absolutely ruthless about cutting away extraneous messages to get to what matters most. Don’t fall into the trap of trying to be everything to everyone. Don’t try to cram every possible message into your UVP. The goal of this exercise is to achieve the highest levels of brevity and clarity possible.

Focus on Selling the Solution, not the Product

A UVP is effective because it is based on how you solve your customers’ problem. Instead of focusing on your product’s fancy features or special technology, it focuses on answering every customer’s primary question, “What’s in it for me?” Once you know how to differentiate your product and have built a strong UVP in support of that differentiation, you need to go to market with messaging that speaks to how your product improves customer lives.

Andy Raskin, an industry leader in strategic messaging and positioning, refers to this as the promised land. “The Promised Land is my shorthand for the desirable, difficult-to-achieve future that you commit to make real for your customers (or other relevant stakeholders). The Promised Land is the North Star that guides everything that everyone does in your company, and should always be the thing that you are ultimately pitching—on your website, in sales conversations, in recruiting discussions, and with potential investors.”

Aim to Delight

After doing all the legwork to understand your market, identify your unique advantage, and craft compelling messaging to convey that advantage, the last step to successfully differentiate your brand is to go the extra mile when it comes to the customer experience.

No matter which attribute you’ve chosen as your differentiator, delivering a proactive and highly responsive experience that blows your customers’ minds is always a smart strategy. Not only will your effort help cement your product’s place in your customers’ hearts, it will also inspire your customers to become brand ambassadors who recommend your product to others.

Kyle Poyar

Partner at OpenView

Kyle helps OpenView’s portfolio companies accelerate top-line growth through segmentation, value proposition, packaging & pricing, customer insights, channel partner programs, new market entry and go-to-market strategy.