Strategic planning: How product differentiation strategy depends on market type

As part of your startup’s strategic planning, you will need to work on your product differentiation strategy. Product differentiation is the singling out of the one element of your product that creates its benefit and makes it unique, and which has relevance for your customer.

To succeed with your product differentiation strategy, you need to understand the type of market in which you will compete. Startups entering or re-segmenting an existing market need to differentiate their product from those of their competitors. Startups creating a new market do not need to do so as they will not have immediate category competition by definition—at least not in the early days.

Strategic planning: When to start work on your product differentiation strategy

Commence the initial work on your product differentiation strategy in the early stages of your startup as you develop your value proposition, protect your intellectual property (IP) and design your product. During this strategic planning process, you should consider what your target customer wants from your product that is not offered by competing products.

Later, when are ready to launch your product, you need to feature your product differentiation in your messaging to your market. This is part of the product process.

For startups following Steve Blank’s Customer Development Model, product differentiation takes place during the customer creation stage, after you have completed the customer discovery and customer validation stages.

Product differentiation strategy in an existing market

Startups looking to compete in an existing market need to identify how they will position their company. Once this element of strategic planning is done, you are ready to differentiate your product from your competitors. In The Four Steps to the Epiphany, Steve Blank writes that product differentiation in an existing market can take one of three forms. The product differentiation strategy can focus on:

  1. Differences in product attributes (e.g., cheaper or more powerful)
  2. The appeal of its distribution system (e.g., delivery straight to the customer’s door or having customers be able to access the product directly online)
  3. The nature of the service you offer (e.g., a lifetime warranty)

In an existing market, customers will already be familiar with the type of product you are offering. With this knowledge in hand, customers will recognize the characteristics on which you differentiate your product. Part of your success will depend on whether your differentiation resonates with customers.

The strategy canvas: A strategic planning tool for product differentiation

The strategy canvas is a useful tool for strategic planning around product differentiation. You can use it to visualize the competition in your market and to see where the opportunities for differentiation occur.

Product differentiation strategy in a new market

In a new market, product differentiation is broader and less effective, as the market does not yet exist and nor do your competitors. Rather than differentiating, it is more effective in a new market to focus your positioning on the overall customer problem and the unique value your solution offers. Bear in mind that in this environment, customers will not yet have the background knowledge to comprehend the differentiating value of the singular characteristic(s) of your innovation.

Product differentiation strategy in a re-segmented (low-end or niche) market

Startups who redefine an existing market into either a low-end or a niche market need to shape their positioning and product differentiation strategy for a blend of both an existing and a new market. While you will be competing in a newly created market (i.e., the one you have just re-segmented), the type of product you are offering will be familiar to customers and so the background knowledge will exist for customers to understand your product differentiation.

In essence, the creation of a re-segmented market happens through a significant differentiation process.

Strategic planning and your product differentiation strategy: Further resources