Understanding Product Differentiation: A Product Manager’s Guide

Your product has something that no one else has. It solves your customers’ problem, or serves their needs in a way that’s better than the competition, in one way or another. Perhaps you’re cheaper, faster, slicker, or maybe a portion of your proceeds go towards a good cause.

If that’s not the case, well…you’re going to have a rough time trying to get to the top when there’s no reason for potential customers to choose you over your competitors.

That’s why product differentiation is so important for success. To create a competitive advantage, you need to identify what your USPs (unique selling propositions) are.

Even if you believe that you’re doing something that no one else is, knowing how to verbalize it succinctly will help you to have a more solid product vision. It will also help you greatly when building your marketing strategy and sales pitches.

What Is Product Differentiation?

Product differentiation isn’t hard to decode: it’s simply the process of identifying what it is that separates your product from the competition. Is there something your product offers that no one else on the marketplace does? That’s the question that product differentiation aims to answer.

gray and blue Open signage

The three types of differentiation:

Horizontal – When the quality of the products cannot be differentiated. In this case things like branding, price, and availability are the deciding factors. For example, people loved Nike’s revolutionary fitness tracker, the Fuelband, but it fell behind Fitbit and Apple because it took too long to include Android support. Ignoring 50% of mobile users, and essentially cutting their potential user base in half, Nike lost out to similar products which served more people.

Vertical – When the quality of the products or services offered are directly comparable. For example, the quality of Netflix’s platform can be compared with that of Amazon Prime, HBO, etc.

Simple/Mixed – When there are multiple differences across both horizontal and vertical differentiation. For example Lyft and Uber appear to be virtually the same product, but each app serves users differently depending on where they live, whether they’re in a wheelchair or not, and whether they need ride sharing as a feature.

Check out: How to Get a Product Management Job at Uber

What Happens When There’s No Product Differentiation?

In a word….failure. Or at least struggle.

Product differentiation goes hand in hand with product-market fit (PMF). When there’s nothing different about your product, your users are simply going to flock to your competitor.

But product differentiation isn’t just a thing that you have or that you don’t have, it’s something you can get wrong even if you have it. Think about the Amazon Fire phone – a notorious flop despite the wild success of Amazon as a company. Within a year of release, the price of the phone dropped from $200 to 99 cents with an AT&T contract. Why?

There were a few things that made it different from other phones on the market. Cameras were used to give the screen a 3D effect which moved when users moved the device in their hands. Unique…but something no one was asking for. Coupled with a lack of Google apps, which it turns out most users are pretty attached to, the product crashed and burned.

What Sets Products Apart?

Quality of offering

The first and most obvious factor in product differentiation. Is your product “better.” Depending on the space you’re in this could be based on different factors. In the hardware space it could be based on durability and quality of materials. In software it could be speed, time to value, design…in truth the list of factors is endless.

It’s also subjective. Just ask Android and Apple users which is better and you’ll find that out! Someone’s perfect product could be horrendously flawed to someone else. You can find the best version of your product with testing, but you’ll never be everything to everyone.

A little depressing perhaps, but good to keep in mind!

Branding and marketing messages

Never underestimate the power of good branding! Just look at WeWork: the actual product on offer was not drastically different to other coworking spaces at the time. Despite being essentially a landlord, WeWork managed to become known as a tech company. Yes, they used tech to supplement their core offering, which was real estate and community, but they weren’t strictly speaking ‘a tech company.’

Check out: Branding for Builders by Former Netflix VP of Product

However, their branding and messaging was very appealing to the new generation of remote workers. It had that inexplicable Silicon Valley-ness to it, despite being based across 119 cities across the globe. As smart as we are, humans are tribal at the core, and enjoy feeling like they’re a part of something. Brand loyalty becomes a reflection of our values, and tapping into that can make for some very successful product differentiation.

white and black street light


There are many differences between online banking services such as Transferwise and N26, and traditional brick and mortar banking. But one of the most important for customers is pricing. For those who are unfamiliar or uncomfortable with online banking, being able to save a significant amount of money by making the switch to digital is a great motivator to at least try FinTech products out.

Product pricing can be what helps your product stand out from the crowd. Providing a high quality service for a fraction of the price of competitors is a great way to open the door for new customers.

Just be careful not to sacrifice quality for savings. Customers have shown that they’re happy to spend a little more for a better product, or for nicer branding.

Check out: How to Monetize Your Online Product


Some products find success by being part of an ecosystem. For B2B software this might look like being able to integrate with other popular software (Slack, Salesforce, Google Suite etc). If your product is something that fits easily into someone’s existing technology stack, that’s another tick in your favor.

Customer service

This is especially key for B2B services. If your servers crash, the companies who rely on you want to know that they’ll have the best customer service to get the problem rectified as soon as possible. If someone gets locked out of their account, they want to know that it won’t take 7-10 business days to get in touch with someone. Being able to offer peace of mind on another level can go a long way in winning over customers.


Your mission could be to make your sector of the market as accessible to as many people as possible. An interface that looks simple to the people who built it could look like a labyrinth to those who don’t consider themselves computer literate. Being able to cater for all levels, from tech lovers to technophobes, could gain you an edge in the market.

The Importance of Building a Product Differentiation Strategy

Sometimes product differentiation is obvious and easy to communicate, and other times you have to actively find it.

If the product is yours, say as an entrepreneur or owner of a side project, then you should already be able to succinctly describe your potential customers, and how you plan to solve their problems in a way that currently isn’t being done. 

“The online community I’m building serves an underserved niche in my industry.” 

“My app does the same thing as a competitor, but for half the price.”

“My product promotes sustainability and actively contributes to eco-friendly initiatives.”

Going back to your ‘why’ or your product’s North Star can help you to identify your main vertical and horizontal differentiation.

shop sign

However, you might find yourself in the unfortunate situation of having to build something ‘because management wants it.’ Sometimes Product Managers find themselves building something that exists purely because the competition is doing it, and The Powers That Be have decided that they want to compete.

In this situation, you need to actively seek differentiation.

The first mistake you should avoid making is to hurl everything under the sun at your poor product or feature. Facebook Messenger serves as a good warning against this. To compete with WhatsApp, they tried to add endless features like games, stories, and marketplaces to try to make it unique.

Sure it was unique, but it was trying to give users things they weren’t asking for in the name of that uniqueness. And it backfired, with more users flocking to Instagram messenger and Snapchat. Messenger, while still not ranking among these heavy hitters, enjoyed more success with its users once it rolled back to a cleaner, less chaotic version.

Take a look at some of the things that makes a product different, and try to see how you can apply that to your product, without sacrificing the real needs of your customers. Stay customer-focused, mission-driven, and data-driven.

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