Introduction to Competitive Differentiation
The critical role of competitive differentiation in modern business
Nearly every successful (and profitable) digital marketing strategy is built on being different.
There’s a lot of noise in today’s crowded market; customers have multiple brands and companies. On top of this, they’re also more informed than ever and take the time to do their research on what they’re buying.
Businesses can capitalize on these facts by showing customers how they’re different from (read: better than!) the competition and why they should be the final choice.
Product differentiation can refine your target market, increase profit margins, and build brand loyalty.
If you’d like a breakdown of all things differentiation, you’ve come to the right place!
Understanding the essence of a well-crafted differentiation strategy
Unique features help customers choose from competing products, so having a differentiated product is powerful in a competitive landscape.
However, even if businesses do everything they can to create products that are entirely unlike anything on the market, that doesn’t necessarily mean anything to customers.
The key to being successful when you differentiate is ensuring customers know your product’s unique qualities.
Awareness is the essence of successful product differentiation. Competitive differentiation is all about finding your competitive advantage and then using marketing campaigns to ensure that it’s on the radar of your target audience.
Uncovering Your Unique Value Proposition (UVP)
Defining the unique value your business offers to customers
The first step to mastering differentiation is to figure out what your unique value proposition is. Also known as your unique features or competitive differentiators, your product or service characteristics distinguish you from your competitors.
You could use any or a combination of these features as your strategic advantage.
There are two types of differentiation strategies: vertical and horizontal differentiation.
Vertical product differentiation is when customers use a measurable factor like price or quality to rank their options and then choose their top choice. Although they’re using an objective measurement, note that customers’ subjective preference will dictate their rankings and subsequent choices.
Take price, for example. A person might choose a low-cost car because they’re trying to save money, but someone else might pick a car with a higher price because they like the prestige that comes with it. Maybe another person cares more about a different objective quality, such as gas mileage.
On the other hand, horizontal differentiation is when customers’ choice is based on personal taste rather than an objective measurement. For example, if a person who wanted a cola-flavored drink chose Coca-Cola instead of Pepsi because of taste preference rather than price or quality.
You might use vertical and horizontal differentiation in a mixed differentiation approach or pick one, but note that your choice will affect your subsequent strategizing.
Using your core strengths and distinctive features to find your competitive advantage
Now that we’ve got an idea of ways you can differentiate let’s move on to choosing the right differentiator for your company.
The first half of finding your competitive advantage is taking stock of your core strengths and distinctive features. It might offer better quality products than other brands or focus on customer satisfaction.
Your strengths and distinctive features will depend on your business:
- Work culture
Take some time to reflect on the how and why of your differentiation. How are you different from your competitors? Why are you different?
The answers to these questions will inform your marketing efforts throughout your strategy.
Understanding customer needs and pain points to tailor your UVP
The other half of puzzling how to differentiate comes from knowing your customers.
Think about your target audience. What are your customers’ needs and pain points? You can get this information from focus groups and combine it with your market research to discover the answers to these questions.
Ideally, they should be as in-depth as possible so that you can empathize with them.
Your product or service is made for your customers, so you must thoroughly understand what they need and what informs their purchase decision. This way, you can identify and leverage strong differentiators.
Assessing your competitors’ strengths and weaknesses
A differentiator is what allows you to be perceived as a better choice than competing companies. You can’t pick the right one unless you perform a competitive market analysis to take stock of your competition.
I don’t just mean a glance at your peers; you need to know them.
Research your competitors’ brand image, market share, marketing strategy, and competitive differentiators.
What do they do right? What do they do wrong? What does the data tell you?
Assessing your competition will give you a good idea of how you might best differentiate yourself from these other brands.
Identifying gaps in the market to exploit when competing on differentiation
When competing by differentiation, you will need to find a gap in the market to exploit.
If you’re struggling to find a powerful differentiator, you can identify market gaps by:
- Analyzing unique services that have shown success recently
- Thinking critically about user experience, customer journeys, and customer pain points
- Paying close attention to trends
- Taking inspiration from the competition and elaborating on or tweaking their approach
- Attending trade shows and conferences
- Listening to customer feedback
- Asking customers in focus groups, online surveys, or interviews.
When looking at the competition, sometimes it’s easy to see what you need to do to stand out. For example, maybe you notice that providing similar goods at a lower price is the only way to differentiate yourself from other companies.
While that’s a lucky situation, this isn’t always the case. Sometimes, identifying gaps in the market doesn’t give you a straight answer like “lower prices”, or it gives you an answer that you don’t like.
You may find that you’ll need more or other differentiators compared to what you expected, especially if you’re selling in a crowded market, but don’t worry. With a little planning and time, you can make it work.
Benchmarking your competitive differentiators against industry leaders
Remember to include as many firms as possible, even industry leaders, when analyzing your market. No matter the size of your company, if you share a target audience and your product or service has similar or even the same features, include them.
Covering as many companies as possible in your research gives you a clearer picture of what works and what doesn’t regarding your target market.
Industry leaders, in particular, show you exactly how a strong brand can use competitive differentiation to gain market share and increase customer loyalty for a product or service.
Selecting the Right Differentiation Strategy
By now, it’s probably clear that whatever you’ve decided your competitive advantage will be, it needs to accomplish many things.
For example, it needs to:
- Meet the table stakes
- Convince customers you’re the right choice
- Convey the value of your product or service
- Help you achieve more sales
- Provide buyers with a positive customer experience
Keeping these things in mind, let’s discuss how you might differentiate your company from the competition, whether with vertical, horizontal, or mixed differentiation.
Cost Leadership: Optimizing costs to offer competitive pricing
One of the most common ways companies differentiate is to offer lower prices than their competitors.
This includes factors such as:
How much you charge
What you charge for (e.g., if you have a food delivery company, things you may or may not charge for include tax, service fees, cutlery)
How often do you charge (e.g., if you have a subscription-based service or are a SaaS business)?
If the marketing data on your potential customers shows that they prefer cost-effective options, then you would be best doing what you can to research the market cost of your product or service and strive to offer competitive prices.
Generally, people like paying less for products as long as they’re not compromising, but be sure not to go too low, or you’ll be considered cheap (derogatory).
Conversely, suppose your target audience seeks a product or service that promises prestige, luxury, and high quality. In that case, you will probably want a higher price that adequately communicates this.
Product/Service Differentiation: Creating innovative and superior offerings
A product differentiation marketing strategy focusing on innovation and superiority works great because you’re offering a unique product or service to every other solution on the market.
Unique characteristics could be design, actual quality, perceived quality, features, longevity, and performance.
Unless they’re specifically buying for social clout or status, customers choose what they believe is the best solution to a problem. Complex purchases tend to showcase this especially.
When you differentiate with this marketing strategy, you must give your customers proof that your company has a significant advantage over the rest.
Niche Market Focus: Targeting a specific segment with tailored solutions
Sometimes, your competitive differentiator is obvious – your product or service is a tailored solution for a very small group of customers who don’t have a lot of choices in the market.
Most companies in this situation think they don’t have to differentiate any further, but that’s not true. Your company must be memorable and unique and tailor its services to give customers the best experience and solution possible.
Experience Differentiation: Delivering exceptional customer experiences
Experience or service differentiators are unique ways your company creates a customer relationship.
Every interaction that customers and prospects have with a representative of your business is important. These services are an example of how your business views your customers.
Customer service calls, live chat conversations, social media exchanges, support emails, and even talking to a salesperson at a counter.
Using customer service as a key differentiator in your marketing allows you to stand out from competitors’ companies by providing personalized, exceptional care and dedication in all of your customer services.
Brand Differentiation: Using perception to your advantage
You can also differentiate your company to customers with brand marketing.
Brand differentiators are ways that you change customers’ recognition, perception, and relation to your company brand.
Brands that employ this strategy rely on advertising to create the intended brand association among customers.
Crafting a Compelling Brand Identity
However you approach product differentiation, it needs to be aligned with and informed by your brand’s identity.
Developing a strong and authentic brand positioning
Your company brand positioning should be true to and guided by its morals, beliefs, values, and goals.
This helps make it authentic and unshakeable, allowing your company to stand the test of time and weather trends.
Creating a brand personality that resonates with your target audience
Of course, your brand personality should also resonate with your audience. Market research, competitive analyses, and surveys can help you to uncover what lands well with your customers.
Aligning your branding with your differentiation strategy
Brands that know themselves inside out find product differentiation easier. To align your branding with your differentiation, you need to know and understand:
- Who your customers are
- What your customers want
- Who your competitors are
- What your competitors do well and do poorly
- Who your company is
- What your company cares about
- Why your company does what it does.
When you have the answers to these questions, you’ll find aligning your branding and product differentiation easy.
Communicating Your Differentiation
Designing a clear and impactful messaging strategy
Effectively communicating your product differentiation depends on designing a clear and impactful messaging strategy that will resonate with your target customers and set your product or service apart from competitors.
Utilizing storytelling to showcase your unique value
One of the best ways to market product differentiation is by using storytelling to communicate your UVP.
Most storytelling is focused on showing rather than telling, but in marketing, you need to do both.
The story should focus on a buyer persona, their pain points, and their journey to solve them. Your product or service could be the hero, but there are countless ways to go about it. For example, your story could feature the customer as the hero who overcame their problem but couldn’t have done it without your help.
Whatever the case, storytelling helps your customers to form an emotional bond with you, makes you more memorable in their eyes, and also boosts their loyalty.
It’s the perfect marketing tactic to showcase your UVP and stand out from other companies cleverly.
Leveraging multiple channels for effective communication
You can leverage multiple marketing channels to communicate your product differentiation most effectively.
Depending on various factors such as age, gender, and occupation, your target market’s likeliness to be found on certain channels will change, so keep that in mind when deciding which channels to focus on most.
Building a Differentiation-Focused Culture
Instilling differentiation as a core value within your organization
If you’d like to take product differentiation seriously, it has to be at the center of everything you do. This can’t happen unless instilled as a core value at every level of your organization.
Focusing on Employees
Employees are the heart of every organization. Achieving product differentiation comes from the following:
- Encouraging innovation and creative thinking among employees
- Empowering employees to deliver on your company’s differentiation promise
It takes a lot of time and effort to listen to what employees need to accomplish their goals and equip them with the right resources, but the results are worth it.
Aligning Sales and Marketing Efforts
Equipping your sales team to articulate differentiation points
Your sales team has a way with words but needs to know which words are right.
Product differentiation succeeds best when the representatives of a company are all on the same page.
Standardizing sales education material can help to ensure that your sales team articulates your differentiation cohesively and comprehensively, always giving the customer all the (accurate) information they need.
Leveraging customer success stories for sales enablement
Customer success stories are a powerful resource for companies. One of the ways that your business can use them is by leveraging them in sales enablement.
Your sales team can leverage these stories in two main ways:
- Sharing them with other customers to demonstrate effectiveness, value, and credibility
- Using them to understand what worked and what to focus on.
Brands that do this come across as more authentic, informed, and human in their marketing efforts.
Measuring and Tracking Differentiation Success
Defining key performance indicators (KPIs) for differentiation
Once you’ve outlined your product differentiation strategy, you can think about setting some key performance indicators (KPIs) to help you monitor and take stock of your success.
For example, grow sales by 5% in the next year.
This example is deliberately vague, but real KPIs should be specific so that you have actionable goals.
The right KPIs for you depend heavily on your specific business goals, mission, beliefs, and customers.
Gathering customer feedback and testimonials
Every company should implement robust systems to collect high-quality customer feedback and testimonials.
They can help you understand what you’ve done well and what you can still improve on, give your business credibility in the eyes of other potential customers, and establish you as an authority in your space.
Of course, most importantly, feedback lets you know how (or if) your product differentiation is working.
For example, you might find out that customers support you because your branding is on point, your business pays all employees a living wage, or your company has astounding after-sales care.
By listening to feedback, you understand what to do more of and what to tone down. You’re also proving to your customers that the brand-customer relationship isn’t just one-sided.
Turning customer feedback into opportunities for improvement shows your customers that you’re invested in their satisfaction, humble enough to listen to feedback, and dedicated to changing for the better.
Analyzing market share and customer loyalty metrics
Market share and customer loyalty metrics are very telling regarding product differentiation success.
For example, customer satisfaction, lifetime value, and repeat purchase rate on top of your market share can all let you know how well-received your product is due to your product differentiation marketing efforts.
Make sure to keep an eye on these metrics and regularly update your goals concerning them.
Adapting and Evolving Your Differentiation Strategy
Staying agile in response to changing market dynamics
Even the best marketing plans need to change with time. As the market’s dynamics shift, you have to respond promptly.
Traditional strategic planning is the status quo in marketing, and while it’s effective for laying out long-term plans and goals, it can also be inflexible and time-consuming.
I’m not saying you should throw traditional strategizing out the window, but I am saying that you need other marketing plans available alongside it.
It would be best if you had a differentiation plan for crises (I can think of one that’s happened in the last couple of years) that allows you to handle disruptions and seize the unique opportunities that come with them.
An agile/adaptive strategy focuses less on specific marketing deliverables and more on general business outcomes.
This marketing approach allows you to be agile and stay on top of whatever the market throws your way.
Embracing innovation to maintain a competitive edge
Aside from crises and unexpected events, there’s also the matter of innovation.
Innovation is also a disruptor; maybe someone within your company has found a new, better way to do something, or there’s been a technological revolution in one of the industries you’re involved with or source materials from.
Instead of turning your nose up or ignoring it, embrace this innovation. Look into it – how can you use it to your advantage?
Not only does embracing innovation keep your business current, it also helps you to maintain a competitive edge when it comes to differentiation.
Continuously refining your differentiation strategy based on data
Refining your strategy should never be a shot in the dark. You have to use data and the right data at that.
Data sources include social media, industry reports, customer feedback, internal records, and web analytics.
There are various tools and techniques that you can use to interpret your data: inferential statistics, descriptive statistics, data visualization, and even machine learning, which is a hot topic right now.
Look for patterns, trends, correlations, outliers, and anomalies and understand what’s causing them and what you should do more or less accordingly.
You may need to update resources, objectives, actions, or timelines to align with what the data is telling you.
Emphasizing unique differentiation for business success
The significance of a well-crafted product differentiation plan can’t be understated.
If you can successfully differentiate yourself from your competitors in a unique, memorable, and authentic way, you can command market share while remaining customer-centric.
It takes work. Finding the right differentiator(s), incorporating it into your marketing plan, and ensuring your entire organization is on the same page – but the results are well worth it.
Your unique value will shine through in everything you do, and your customers will undoubtedly know it.