Product Differentiation Strategies That Ease Onboarding Pain
In high-tech industries, reseller businesses constantly struggle for cost leadership, a market advantage claimed through aggressive pricing tiers. Consequently, many suffer from low retention rates as competitors work to undercut each other. To avoid such pitfalls, your company must practice remarkable customer service to (1) enhance its value and (2) break away from becoming another dollar-defined service.
Interestingly, cost leadership conflicts happen internally as often as externally. Once you've set a price point for your business, you must identify appropriate products to pair with your service. Every pricing tier contains a bevy of equal brands, a quandary known as a monopolistic competition—a state wherein cost value does not differentiate one product from another. As the reseller, you must then identify what will appeal to customers functionally. How you determine and communicate said appeals is called product differentiation.
Why Bother with Product Differentiation?
When a business sells products of equal value, selecting one over another becomes a challenge for customers. In fact, it is a common and sometimes fatal onboarding barrier. When you successfully differentiate products, customers can adopt your services quicker. As a result, your business gains the following advantages.
Customer care: Customer service and customer care are not interchangeable terms. Service implies a transactional relationship whereas care refers to the overall experience. By differentiating products early in the sales sequence, your business demonstrates commitment to the user and his or her buyer challenges.
Brand authority: Distinguishing products for your customers demonstrates expertise. It also shows customers that your business cares more about quality than its affiliations. Biases can ruin a productcatalogue and alienate customers. In fact, the right product catalogue showcases how well you know your customers' needs.
Service focus: The process of differentiating products reveals unnecessary overlap in offerings. If two products offer the same benefits, one should go. We discuss the act of refining product selection here.
How to Differentiate Products for Customers
Three strategies exist for successful product differentiation:
Simple—to highlight what makes each product unique. A simple differentiation can use multiple criteria.
Horizontal—to hone in on a single defining element of a product. Said element should not define the quality, just the functionality.
Vertical—to discover the defining quality difference between products.
The differentiation strategy chosen should focus on matching products with customer needs. Ideally, you want to stage each product as an inadequate substitute for another. Doing so accelerates the decision-making process by letting each product stand for one customer type. To exemplify these concepts, let’s run scenarios. For anonymity purposes, we will use three nameless phone models in the comparison below.
Phone A Phone B Phone C
Full HD Audio Full HD Audio with Silence Suppression Full HD Audio 12 Extensions 16 Extensions 16 Extensions Power-over-Ethernet Power-over-Ethernet Power-over-Ethernet LCD Display Wi-Fi LCD Touch Screen
To differentiate the above, we must eliminate all commonalities: Full HD Audio and Power-Over-Ethernet. The result (a simple comparison) is as follows.
Phone A Phone B Phone C
12 Extensions Silence Suppression 16 Extensions LCD Display 16 Extensions LCD Touch Screen Wi-Fi
Because products still overlap, a simple comparison might not suffice. Instead, let's attempt a horizontal or vertical differentiation. The goal here is to consider what customers care about.
If customers use only three extensions, then the number of extensions can go unmentioned. Likewise, if customers prefer Ethernet, then Wi-Fi as a feature means little. With both points considered, let’s revisit the chart.
Phone A Phone B Phone C
LCD Display Silence Suppression LCD Touch Screen
Of the features left, we have no choice but to go with a vertical comparison. The isolated features mark quality differences:
HD audio with silence suppression trumps regular HD—this feature adds value;
An LCD touch screen display offers a better user interface than a plain LCD screen—again added value.
As demonstrated, all strategies come with benefits and drawbacks. Our simple differentiation did not narrow enough. Conversely, the vertical underplayed the strengths of Phone A through comparison. If we were to investigate our fictitious audience more, then knowing which trade-offs are acceptable would reveal the best strategy.