In this series of posts, we discuss the role of Product Manager in defining, documenting and communicating market opportunities – in particular answering five key questions about your proposed product…
In this post, we focus on your differentiation which outlines the one or two key advantages you will offer customers (that competitors do not) and defines your position in the market. Differentiators are sometimes called unique selling points or propositions (USPs).
Apart from customer communication, the key reason for defining a differentiator is to articulate your core competency as a business. This is the one of the most critical product decisions you will make. Much of your product development will focus on improving differentiation, putting as much distance between you and your competitors as possible. Knowing your differentiator will help you prioritize the features and functionality most critical to deliver to customers – other features (which are similar to competitors) can just be just “good enough” or you may not even invest in them at all. A differentiator helps avoids your roadmap becoming a race to feature parity with competitors.
That said, while differentiators capture a potential customer’s attention, delivering on your entire value proposition is why they stay. You will have to build a range of requisite features to ensure your product does not lag too far behind alternatives and keeps your customers happy.
Differentiator Best Practices
Customers should see your differentiator as unique and substantive. A good differentiator is sustainable and provides you an “unfair” advantage over competitors. You want to make it hard for customers to stop using your solution and make it difficult and costly for competitors to replicate what you have.
1. Unique: not otherwise available to customers
Search for exclusive assets or approaches that you have or can develop. These may include:
- Access to propriety technology or infrastructure
- Content only you have or can produce
- Exclusive access to partners, suppliers, vendors, or channels
- A large community of users (this creates a network effect, where a product or service gains additional value as more people use it. Even if a competitor has all the same features, users will not switch.)
- Data about your customers that allow you to deliver an exceptional personalized experience
- A superior brand associated with quality, reliability, and trust
- Organizational expertise, functions, processes, or relationships
- A platform with seamless product integrations across many tools or services (providing customers with a convenient one-stop shop for their various needs)
- Unique cost structure or scale (so you can be cheaper and more profitable than your competitors)
Don’t forget to state why these are of value to your end customers. Unique technology, for example, is not in of itself of value unless it allows you to do a better or cheaper job in solving your customers’ needs.
“Don’t try to be all things to all people. Concentrate on selling something unique that you know there is a need for.” – Lillian Vernon
2. Sustainable advantage: competitors cannot easily replicate it
If easily copied, then you won’t have a differentiator for long. Being “easier to use” (because you have a better user experience) or planning to offer a cheaper price (unless you have superior cost structure) aren’t sustainable. User experience can be readily copied and undercutting on price alone will simply lead to commoditization. Cost and convenience offer temporary advantage, but do you have something that will maintain your edge?
If you are working on a new product your differentiation might be more an aspiration than a reality. That’s fine – it just means you need to focus on execution, building core competency quickly to capture market position.
The value of patent protections
As a defensive strategy, companies should seek patents for the key technologies they have developed. However, in mainstream, fast-paced internet and software industries, you can’t rely on patents alone as a defense against competitors. Many companies are simultaneously tackling the same customer problems and are bound to come up with very similar ideas and solutions. What’s more, patents are frequently subject to costly legal challenges, and can be overturned. And by the time the legal process reaches its conclusion, the opportunity for commercial success may have come and gone.
3. Substantive: not trivial, too broad or too narrow
Your value proposition statements should neither be too broad nor too trivial. Don’t make the mistake of attempting to appeal to as many people as possible, nor that of being so specific that you will only attract a niche audience.
Ask yourself what the appeal is to potential customers, and then directly test your assumptions with potential customers. Force rank or place on a 1-10 scale a number of possible statements to get a relative sense of what matters most to them. If your differentiator is only of interest to a small segment of your target audience (in particular, if it is only of interest to early adopters), then it won’t be compelling enough to build a sustainable business. Be careful not to define your differentiation factor purely around an advanced or rarely used set of functions. (There may be exceptions such as, for instance, when you have a “Freemium” product that offers a basic service for free but aims to capture a small segment of power users ready to upgrade for premium features.)
Babylon’s differentiation statement combines unique technology with customer experience that will have wide appeal. What’s described is a fully-automated end-to-end solution that, if executed well, will give them an enormous lead in convenience and quality control over competitors:
Babylon’s differentiation is its intelligent harvesting process that is entirely automated, meaning that the only labor required by the user is to plant the seeds, track its growth progress, and collect the produce when it is ready. Automation decreases the risk of human error and guarantees fresh, organic produce and eradicates the distrust often experienced with third-party produce exporters who can’t guarantee an absence of GMOs or the degree of cleanliness which affects the quality of the produce.
War story – Differentiators vs. Feature Parity
I was working for an online photo sharing and printing business that had two strong competitors. We all offered the ability to upload photos, share albums with friends and family, print photos and order photo merchandise such as custom-made books.
Every quarter we’d run a customer survey, gauging satisfaction in using each key feature in our service compared with the same features offered by competitors. For many features, such as upload speed, sharing features, shipping cost, shipping speed, photo editing, and album management, we wanted to only to do as well or slightly better than competitors. While each feature was a key component of the service none was reason enough to choose our service over competitors.
Instead, we differentiated our service on the highest possible image quality and beautiful merchandise. Ours was the quality brand and we invested heavily to make sure we retained that position. This included creating superior prints with our proprietary image correction software, using professional advanced printing labs, and investing in the most beautiful photo book design templates.
War story – IP in Tech is hard to defend
Using a sophisticated analysis of search phrases and user behavior, the company simultaneously served more effective and relevant advertising while making it more palatable for targeted users. The company concerned had claimed and been awarded an Australian patent for the technology behind this targeted advertising. However, despite having the patent, various technologies for something similar had been in use for several years.
I was called on as an expert witness in the case, in which the Australian company challenged the rights of other companies to make use of their patent. The expensive court case ran for a few months, eventually concluding that several companies had concurrently worked on and launched highly similar technologies – there was “prior art” that invalidated the patent.
In modern day technology companies, it is (1) very hard to prove an invention is truly unique and patentable, and (2) defending such patents is costly and time consuming. The fast pace of technology companies means that even if you have a rare legal success, by then the invention is obsolete.