Steps to Create a Product Differentiation Strategy (Part 2)
December 29, 2021

Steps to Create a Product Differentiation Strategy (Part 2)

Gaussian Team

In Part 1 of this blog series, we defined and outlined who exactly uses a product differentiation strategy. While it’s easy to read the elements of a successful differentiation strategy, it’s harder to create one.

Putting together and maintaining a cohesive product differentiation strategy can be a challenge for entrepreneurs and established CEOs alike. In this guide, we'll walk through how to create such a strategy efficiently and systematically, and offer a real-world product differentiation strategy example.

There are 6 steps to creating an effective strategy for product differentiation:

  1. Define customer segments and "problem area"
  2. Identify customer workflows, behaviors, and pains
  3. Express pains and other customer insights as customer needs
  4. Prioritize customer needs
  5. Map features/services against top customer needs
  6. Determine new differentiators for product, messaging, and CX

Let's dig into each.

1. Define customer segments and "problem area"

Surely a customer-oriented process must start with the customer! Defining the target customer groups is necessary to focus when building products, as we've already agreed that we have to be efficient in our product strategies.

Refresher: What is a customer segment? It is a subjective grouping of potential customers based on some measurable identifier. Examples: 45+ Year Old Urbanites, SMB Food Manufacturers. Try naming your segments to keep them alive—eg Uma Urbanite.

Within a group of potential customers there are probably infinite different types of product that could exist, based on the infinite problems that people have that they would like solutions to. It's critical to concretely define a problem area upfront. It's what separates one company manufacturing shoes from another company manufacturing airplanes.

Many teams use market research to help define a problem area, as the market size can indicate whether the juice is worth the squeeze. (We certainly recommend this to our clients.)

2. Identify customer workflows, behaviors, and pains

Customers are willing to pay to solve their "hair on fire" needs. This means that for your in-target customers, you must identify their top pain points (within your problem space).

The first time you do this, this can be hard—so many pains and ideas, after all. Here are some things to try:

  • Try to identify workflows that the customer must frequently follow, and for each, try to draw a simple block-diagram to show the steps in that workflow
  • Try listing all of their "jobs to be done"
  • Try writing down their behaviors and fears

Once you've identified these realities about the customer, it is far easier to ask your team, "What's broken about these workflows and jobs-to-be-done?" and thereby arrive at a list of pain points. If doing this for the first time, shooting for 5-10 pains is a good target.

Identifying customer workflows isn't just helpful for finding pains. Remember what we said earlier: it's also important to make sure that your product doesn't disrupt these workflows substantially (or at all) when deployed at the customer.

It's critical to note that all of these customer insights (pains, workflows, jobs-to-be-done, behaviors) must come from the customer—through customer interviews, sales conversations, customer surveys, focus groups, market research, in-app feedback, to name a few methods. While a quick-and-dirty product differentiation strategy might be lighter on this research, ultimately robust processes must be set up at an organization to continuously collect these data points (and interpret them).

3. Express pains and other customer insights as customer needs

Every pain can be stated as a customer need—for instance:

"It takes me too long to file my tax forms" -> "Customers need to reduce the time spent filing tax forms"

Turning the biggest pains into customer needs like this yields a short list of customer needs. This should be enriched by the other insights around workflows, behaviors, and jobs-to-be-done, which should add another 1-3 customer needs.

4. Prioritize customer needs

The critical step of an efficient product differentiation is to have an apples-to-apples prioritization of these customer needs. This is done by first assigning scores to each customer need:

  • Magnitude (1-5): On a relative scale, how much would this customer pay or give up in order have this need substantially solved?
  • Competitive level (0-2): On a relative scale, how many other companies are already partly or fully tackling this customer need?
  • Priority: Magnitude minus Competitive level

Customer needs should be ranked according to how large the Priority is. This prioritized list is the cornerstone of the product, the go-to-market functions, and the entire company—it is, in fact, the rocket engine of the product differentiation strategy.

5. Map features/services against top customer needs

The next step is to map your features and services (both existing and planned) against the top customer needs, like below:

There is a "many to many" relationship between customer needs and features/services

6. Determine new differentiators for product, messaging, and CX

Once you have a prioritized list of customer needs that are mapped against features, you can infer several takeaways:

  • Existing features that solve high priority needs with low competitive level: these are your current differentiators
  • Planned/hypothesized features that solve high priority needs: these are the next features to build (eg on your roadmap)
  • Features that solve high priority needs where the competitive level is high: these are table stakes, without which you may underdeliver

These takeaways should be directly utilized to guide planning and execute for product offering, go-to-market messaging, and customer success:

  • New feature prioritization and roadmapping should be weighted (via a score) towards high priority needs, both differentiators and table stakes
  • Messaging (in marketing collateral/campaigns and in sales) should focus on current differentiators, as these are key areas that you stand out in today
  • Top customer needs should be assessed before, during, and after service delivery by CX

Customer feedback at the feature-level can also be very useful to help sharpen the understanding of which areas of the existing product offering are most outstanding in customers' eyes.

What next?

If you’ve completed this process, your team now now has a set of differentiators and table-stakes, as well as the strategic actions required to capitalize on them, such as a "customer needs" score for each feature idea that can help you with prioritization/roadmapping.

But remember: your work isn’t done. Your customer knowledge will grow and change over time. As it does, revisit the product differentiation strategy often, continuing to refine it with the knowledge you’ve gained.

Real-World Product Differentiation Example: An Industrial Technology SMB

To make these concept concrete, here's a real-world product differentiation case study, based on an innovative industrial tech venture focusing on technological solutions to industrial fixed equipment maintenance. Screenshots below are from Sapeum Strategy, a tool that helps with product differentiation strategy.

1. Define customer segments and "problem area"

We mapped out two key segments: "SMB Manufacturers (Non-Food)" and "Large Manufacturers (Non-Food)". These were separated from other potential segments that ultimately weren't attractive enough from a market size perspective: "Food Processing Facilities" and "Raw Materials Processors."

2. Identify customer workflows, behaviors, and pains

We then listed out the pain points for each company, using our customer knowledge acquired from selling into these industries. We also identified what were not pain points for each segment, for extra context.

Simple workflow diagrams were also assembled based on customer conversations.

3. Express pains and other customer insights as customer needs

Each of the pains identified was turned into a customer need. Workflow realities were layered in afterwards as 1-2 additional customer needs.

4. Prioritize customer needs

Each need was then scored for Magnitude (how much customer would be willing to pay for this need to be substantially met) and Competition (how active are competitors in trying to solve this need).

5. Map features/services against top customer needs

Lastly, each customer need was mapped to (1) Features today, and (2) Feature ideas.

6. Determine new differentiators for product, messaging, and CX

The results of this analysis were as follows:

  • The current differentiator is the speed with which we deliver maintenance savings, given the low level of competition and the high level of progress we have made already on this
  • Most urgent new features are the OTS sensor suite and the network health dashboard, as these map to the highest priority needs
  • The core of the new marketing message must be (a) the ability to reduce maintenance spend (b) the speed with which we can do this, as these are our current differentiators

The resulting communicable strategic statement was as follows:

We will focus product development around features that directly minimize customers' maintenance costs with little to no integration burden, while realigning product messaging around our differentiator of fast impact.

The Core of Every Product Strategy Is Understanding Customer Needs

A great product differentiation strategy is deeply aligned with solving problems for the customer. Before building a plan, you need to plan for your plan. Ensure you and others in the strategy creation process are closely attuned to your customer. Strive to solve their needs as simply as possible. And ensure that your mentality is to develop a plan that is not final, but instead will be continually improved.

From there, explore your major segments and rank their pain points based on their willingness to pay to solve them. Use this knowledge to identify the top customer needs for your product and identify how you best solve them.

Finally, once you’ve finished planning for and around your differentiators, your work is not done! Successful companies are always learning more about their customers, and they are applying that knowledge through nimble ideation. As such, be regularly adjusting and improving your strategy as you discover new things about your customers and their needs.

Need help building a new software product, or creating a plan that identifies and doubles down on product differentiators? Learn how our team at Gaussian can help.

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