September 5, 2013
Whatever your product niche or service offering, chances are, you’re facing a saturated marketplace! The proliferation of the online market has led to stiff competition in niches where little competition used to exist, and traditionally competitive niches have turned hyper-competitive. Product differentiation offers companies substantial benefits. The presence of any market competitor drives down prices, but the effect is much smaller when the competitor is a different type of product. That said, products are almost always the combination of the tangible and intangible. In short, the sum total of the offered product may be differentiated even though the tangible product or delivered service is identical.
The question many entrepreneurs have is “How can we differentiate our offerings beyond just pricing?”
Why Pricing Isn’t the Answer
Let’s step back a moment and look at pricing. There is always some new market entrant that’s willing to try being the low cost provider. And even though they will shut down, as soon as they exit the market, there is another new player willing to try the low price strategy. You can never win.
However, being the low cost producer may offer a competitive advantage. This is a cost leadership strategy. Many market segments strive to minimize (production) costs. If the selling price can at least equal the average for the market, then the lowest-cost producer will have the best profits.
Why Niches Aren’t the Answer Either
There is a false notion that niche markets provide for product differentiation. The organic fruit market niche offers the opportunity to differentiate fruit from common place, traditional fruits offered by large chain food markets. While it does allow stores to differentiate their fruit from commodity fruits, organic fruits are not a differentiated product. Simply offering organic fruits only puts a provider in a different but smaller commodity market.
10 Strategies to Improve Product Differentiation
Product differentiation is one of the key product strategies for the most successful businesses. But how do you make your product stand apart from the dozens, hundreds — even thousands — of other similar products?
1. Feature Richness
This answers the question of what does the product offer that others in the marketplace do not? With this strategy, providers offer a different set of features and options than their competitors. However, this often results in a short-lived advantage, as tangible features are the easiest aspect of a product for competitors to reverse engineer and incorporate into their own versions. To survive, a company always needs to lead and be offering the latest set of features in follow-on versions. This can be a costly proposition both in terms of development and promotion of the new versions.
Another vehicle that can differentiate your offering from the competition is packaging. Consider a business faced with differentiating their product, which is viewed by customers as a commodity. Such a business should gather their competitors’ products and place them side by side on a shelf. Do any of the packages stand out from the others? Many competing products are the same size, use the same colors, and provide similar copy. A new package design may be what’s needed.
3. Product Form
When it comes to products and form factors, psychologists have shown that people are drawn to the aesthetically pleasing over just functional. Product design allows the manufacturer to convey something beyond the functional attributes of the product itself – something that appeals to the target customers. How many times have you bought a product because it simply looked cooler than the other choices?
4. Accompanying Services
Sometimes, it’s difficult to differentiate on the basis of the product alone. Another approach is to differentiate based on services offered with the product. These services can include responsiveness to inquiries, ease of order, efficiency of transactions, clarity of confirmations, speed of delivery, installation, financial arrangements, customer training, warranties, repair services, maintenance and disposal of the product. I once bought a new sofa because the furniture store was the only one offering to remove my old sofa upon delivery of the new one.
5. Community-based Strategies
Social identity theory states that as a member of a community, individuals adopt behaviors consistent with the stereotypes associated with the group. Research shows three key features of communities – values, symbols and reciprocity. Businesses have increasing been exploiting this trend. Companies are establishing a connection or relationship with one or more communities with the goal of building a competitive advantage. Community members come to recognize the company as part of their group and express greater willingness to reciprocate. Businesses engage in corporate giving, strategic philanthropy, social sponsoring, and corporate citizenship – all aimed at interacting with the communities.
If a product is lacking in distinctive product qualities, this absence can be compensated for with direct communication with consumers. Consider Gary Vaynerchuk – the wine guy – sold wine through his retail shop through video marketing. Alternatively, businesses can focus their customers’ attention on all the different everyday uses of their product as well as the value it offers for the price.
7. Partnership Opportunities
Businesses can partner with another business offering a complementary product or an associated service. Often when a product or service cannot stand on its own then partnering with another company’s complementary offering may be necessary. Consider Internet retailers offering their products using Amazon’s fulfillment and Prime services, thereby appealing to the 10 million Prime members. Another example is when HBO partnered with hotels, and travelers patronized hotels that advertised the available of HBO in rooms.
Read online product ratings and reviews and you’ll find the most common complaint about products is poor quality, that is, a physical product breaking soon after purchase. Similarly, the most common complaint about services is they didn’t deliver on their promises; the customer had one expectation and the business delivered another. Yet, businesses that deliver quality products don’t often mention or demonstrate this advantage during the sales process. Market research shows companies that can enhance the quality of their products can drive competitors out of the market. The hardest part about quality is realizing it is subjective; it’s what matters to the customers and is customer-defined. Since quality is at the forefront of customers’ minds, those offering high quality products need to convey this to customers beforehand.
9. Memorability and Branding
Whatever approach you opt to take as you strive toward successful differentiation of products that you sell, aim to be memorable in some way. Memorability equals sales — it’s a marketing 101 type of fact that every retailer knows, but few actually move in this direction.
Make your product memorable with a unique branding approach, unusual slogan and fun style. Launch a memorable video marketing campaign — the type of video that’s intended to be a ‘viral video.’ Host a fun or creative contest or competition that takes social media by storm! Think outside of the box! In short, don’t be boring! Do something interesting or engaging. That’s the key to the most successful product strategies.
Creating a brand goes beyond just providing a product or service. A brand is the personality, the identity and the essence of a product, service, or company. Branding can impact how much consumers are willing to pay for a product or service. The objectives of successful branding include delivering the message clearly, confirming your company’s credibility, connecting to your target prospects emotionally, motivating the buyer, and establishing user loyalty. And branding requires a plan. Every product has some sort of brand associated with it. If you don’t define, your customers will.
10. Customer Perceptions
A differentiated product doesn’t need to be a better product, it just needs to be perceived as a better product by the buyer. Much of the advertising and promotion is focused on trying to convince consumers that their product is better than those of competitors. Whether it is actually better doesn’t matter. The only thing that counts is if you can convince the consumer that it is better. However, you can’t convince anyone of anything. You can only provide them with the information to convince themselves. To control customer perceptions, one has to know how the customers think so the company can provide them with the facts to persuade themselves.
Filed under: Marketing Tips