Differentiate or Die.
7 Tactics for Building Products That Shape The Future
Watch a replay of running our hands-on workshop on this topic here
“Companies fail because they fail to escape the competition”, to quote Peter Thiel, founder of Paypal.
Specifically, that means that they did not do something uniquely valuable enough to get users to use their product, to pay for their product - to care about their product at all. This is true if you are launching a new product. It’s also true if you’re managing an existing product.
The price of failure?
You remain stuck, working on product that don’t really matter, unable to go to the next level as a product leader.
In this article, I will explain why products fail when they fail to differentiate, before highlighting 8 specific tactics you can apply to your products in order to help them escape the competition - and achieve the kind of success that will help your products shape the future.
WTF is Differentiation?
Like “MVP” or “synergy”, “differentiation” is one of these terms thrown around by business & product people with no deep understanding of what it really means.
On a basic level, differentiation means we are presenting our product & developing our product to be different from what already exists.
However, in reality, “being different” is not enough. We could, for example, tell our audience that we’ve come up with an amazing new diet plan where you just eat McDonald’s burgers all day.
That diet plan would be different, but it would quickly reveal itself to be ineffective - counter-productive, even - & we are unlikely to see sustained growth (unless you count the growth of our customers’ waist lines as a key metric…).
Differentiation done right comes down to a simple formula:
Different + valuable = escape the competition.
Different is important because it is what will grab our target customer’s attention. It is what will make them try you & not the existing solutions.
But valuable is also important because we need to still ensure we are delivering on whatever outcome our target customer wants from us (e.g. losing weight).
When you are able to be different & valuable, you are likely able to acquire our target customer, retain them, and ultimately get them to pay us for our product. This means you are able to escape the competition & build a successful, profitable product.
Why You Must Differentiate or Die
If we look at the top 20 reasons for startup failure, according to a CBInsights report of 101 startup failure most-mortems, 6/9 of these are related to lack of differentiation.
These are also relevant for new products within existing businesses, not just startups.
If there’s no market need, it means we are not solving an acute problem, or that our solution already exists. Lack of differentiation.
If you ran out of cash, it’s likely you built a product that wasn’t differentiated enough for users to pay for it - and, ideally, pay a lot for it.
If you got outcompeted, it means somebody did the same thing, but better
If you got your pricing/costs wrong, it likely means you were in a price war, competing with an undifferentiated offer, fighting with your competitors for business (imagine you sell generic olive oil to supermarkets. How hard would it be to compete for business?)
If you suffered from poor marketing, it simply means your offer didn’t resonate with its target market (i.e. they've seen it before & don’t care)
If you ignored your customers, it means you were never going to come up with the kind of unique insights to drive a unique differentiation strategy (i.e. offer something truly different & valuable)
If you find yourself in what we call a Red Ocean, where you’re one of many fishermen, competing for a limited number of fish, you’ll always go hungry.
Instead, the goal is to find a Blue Ocean: A market with very little competition, either because you have a radically differentiated offer (i.e. doing something really unique & valuable) OR you’ve created a new market entirely!
That kind of differentiation doesn’t come from copying our competitors.
It comes from, firstly, interacting with your target users to develop the kind of unique insights that might drive a unique product strategy (more on how to do effective product discovery in this article).
Secondly, effective differentiation comes from then understanding the toolkit of different tactics available to us to differentiate.
7 Tactics to Differentiate Your Product Effectively
TACTIC #1: DIFFERENTIATION BY ADDED BENEFIT
You can differentiate your product by providing one Added Benefit that helps you stand out.
Take Jira v. Productboard.
Both products target a similar market: Product Managers. Both have a core value of helping you build great products. However, rather than focusing just on execution (e.g. Jira), Productboard helps you also organise your product discovery work to help you work out what you should be executing on in the first place (the Added Benefit).
So, ask yourself: What added benefit can we provide to help us stand out + provide a huge amount more value?
TACTIC #2: DIFFERENTIATION BY BRAND
You can also differentiate your product by building a very strong brand.
Specifically, that brand should evangelise a specific version of the future that they hope to help build.
Take Patagonia v. North Face.
Both companies broadly offer the same thing: Quality outdoors clothing. However, Patagonia RARELY talks about what they do (i.e. sell clothes). Instead, they focus on why they do it. In their case, selling clothes is simply a way of achieving a certain vision of the future: Saving the environment through sustainable clothing & reinvesting profit to improve the environment.
Customers buy from Patagonia instead of North Face because they buy into that vision, not necessarily because they think Patagonia sells the best outdoors clothing.
So, ask yourself: What vision of the future could we sell to our target customers? And how can we focus all our actions on creating that future?
TACTIC #3: DIFFERENTIATION BY EXPERIENCE
You can differentiate by crafting a completely different experience for your customers.
To take a simple example: Why does someone spend 7x more on a cocktail bought in a fancy cocktail bar v. from a supermarket? Because of the experience! The ambience, the music, the sense of social status, the experience of watching a specialist mixologist crafting that cocktail right in front of you.
The same principle can be applied for digital products. Think of products you’ve used that delight. It could be through an engaging onboarding experience. It could be done through fun copy in your emails & throughout your product.
So, ask yourself: How can we make our experience different AND delightful?
TACTIC #4: DIFFERENTIATION BY PRICE
You can differentiate your product through expensive pricing.
Price is not an objective reality. We don’t price something simply based on the costs & an attempt to make a certain margin (e.g. 10% of revenue). Price is subjective, based simply on how somebody values a certain product.
Let’s take my company, Prod MBA v. a product course on Udemy, to illustrate this point.
Firstly, you can charge a higher price if you offer more value with your product. Rather than just offering a video course, we provide better quality content, group workshops in small groups, 1x1 coaching sessions & bonuses like “interview prep”. This means we aren’t competing in the $10 Udemy course, but, instead, in an entirely different product category.
Secondly, pricing sends a signal. If something is expensive, it is more likely the customer will value the experience more. Prod MBA would not work with low prices. Profitability aside, it is deliberately a difficult bootcamp. We throw students in the deep end to build a real product from scratch because we believe that is the most effective way for them to become a confident, effective product leader. The kind of person that will shape the future. If we charged $10, students simply wouldn’t be committed enough to get results. They’d dip their toe, maybe, but likely not put the required hard work in.
Ask yourself: How could we stack value to justify an expensive price? And how might we run an experiment to test 10x our current price?
TACTIC #5: DIFFERENTIATION BY PROFIT MODEL
Furthermore, your profit model can be the driver of differentiation & product success.
Take Salesforce in the 2000’s v. the incumbent software giants like Oracle.
At the time, companies tended to be locked in to long-term contracts & huge upfront fees to use software. This was just “the way things are”.
Salesforce, on the other hand, realised that these lock-in contracts caused a huge amount of friction: Customers were unsure what the product was like until they signed a contract & they were locked in to a multi-year sunk cost they weren’t sure they would always need.
They therefore tried something completely new at the time: Paying for software by a monthly or annual subscription. This removed upfront friction, help customers feel in control of their software costs & was refreshingly different (and therefore intriguing) at the time.
Ask yourself: How might you charge for your product differently? Or what different profit incentives could we create?
TACTIC #6: DIFFERENTIATION BY MANUFACTURING
For physical products, manufacturing is generally seen as a constraint: Added cost, slower iterations & more time to deliver value.
But we can leverage manufacturing as a differentiator. Take the example of traditional braces v. Invisalign:
Both products are targeted at a broad audience of those who want to improve their teeth in order to get a beautiful smile.
Traditional braces, however, take multiple visits to the dentist, have to be put together manually in your mouth by the dentist (takes lots of time + uncomfortable). Plus you don’t know how long it will even take!
Invisalign, on the other hand, by 3D printing the retainer you put in your mouth, are able to deliver a custom product that can be delivered straight to your day in a matter of days. Plus you know exactly how many retainers to use & precisely how long the whole process will take.
A far smoother, far more effective product experience.
Ask yourself: How might we manufacture our product in a radically different way? One that is faster, with less friction, and can provide a much better user experience?
TACTIC #7: DIFFERENTIATION BY DISTRIBUTION
For physical products, we can also different by how we distribute our product to our customers.
Take Amazon v. your average high-street store.
Amazon can deliver value faster & cheaper because their distribution flow is shorter. Rather than shipping from a factory to a physical shop, then either delivering it to your door (or, more commonly, hoping that customers come in to buy whatever you have on your shelves), Amazon does things differently.
With Amazon Prime, you get the product straight from the distribution centre straight to your door. That means lower costs for Amazon, as they don’t need to pay for a physical store. But furthermore, it means more value for the customer in lower prices & less time from ordering to receiving the product.
Ask yourself: How might we provide radically faster, cheaper distribution?
Remember: Product success in the New Economy - one with intense competition from more competitors & lower customer budgets - depends on a strongly differentiated product strategy.
It’s no longer good enough to just do what everyone else does.
It’s a sure path to fail.
Therefore use this list as a starting point. A way to brainstorm with your team. A document to revisit to try to generate a unique, differentiated way to help your product stand out.
It will mean the difference between product failure and, on the flip side, building a successful product that can shape the future.
Great dive and examples! I like tge structure that considers sub cases like price leadership and great experience - I often saw them as separate scenarios, while “differentiation” was meant mostly as a matter of benefits, innovation, patents, etc. Your model, by including all such cases, empasizes that absolutely any business needs to think of differentiation, regardless of a plane.