Product differentiation theory goes back 90 years to economist Edward Hastings Chamberlin’s book Theory of Monopolistic Competition.
Let me save you the read and share his view on product or service differentiation, which is still in use today:
“A general class of product is differentiated if any significant basis exists for distinguishing the goods (or services) of one seller from those of another. Such as basis may be real or fancied, so long as it is of any importance whatever to buyers and leads to a preference for one variety of the product over another.”
He goes on to describe three differentiation categories that are very relevant to product marketing: vertical, horizontal, and mixed.
Many marketers, including me, say differentiation is one of the most difficult things to get right – and very few nail it. But here’s the good news: Storytelling (once again) comes to the rescue.
Before I explain how, let’s look at why marketers struggle so much with differentiation.
Why product differentiation in marketing is so difficult
It’s easy to see the differentiation buckets (vertical, horizontal, and mixed) and say, “OK, great, I’ll focus on that one.” But picking one can be extraordinarily difficult.
Customers are irrational. Getting customers to identify how they make decisions is almost impossible, especially for complex purchases. Contextual conditions, emotions, and other factors, including memory, can inhibit marketers from choosing the correct horizontal or vertical differentiators.
Some competitors aren’t competitors. Your company’s top competitors are often not the best comparison. Nor can you differentiate your brand against perceived competitors. New and less-clear markets are particularly susceptible to this. I hear tech startups say, “We’re in a category all by ourselves.” My response is, “That’s not a good thing.” It’s hard to find differentiation if there’s nothing to differentiate against.
Things change quickly. Continually monitoring customers and going deeper into competitive, contextual, and other market differentiation is difficult. Today’s market moves quickly. It can often be faster to throw differentiators against the wall and see what sticks.
Then, the categories themselves involve challenges.
Vertical differentiation depends on the customer’s hierarchy. In this category, differences among products are objective. Customers identify discernable options and rank the products’ quality and prices. They choose based on their hierarchy of highest to lowest quality. For example, a customer picks an Apple computer because the brand is known for high-quality products. Or someone selects a frozen pizza because its calorie count is the lowest. Perhaps the buyer chooses a known brand over an unknown brand.
An old saying in the consulting industry, “Nobody got fired for hiring IBM,” is an example of vertical differentiation.
Horizontal differentiation depends on customer feelings. Horizontal product differences are subjective because no objective ranking can distinguish the “best.” Customers choose based on what they like best at that moment. Someone who prefers vanilla chooses a shake of that flavor rather than a chocolate one. An iPhone customer picks the purple model because that’s their favorite color. Or the company selects an enterprise software package because your CEO liked that salesperson the best.
Mixed differentiation comes into play on complex purchases. More considered or complex purchases usually fall into the mixed differentiation category. Customers use vertical and horizontal differentiation in varying combinations. For example, a couple planning to buy a new car considers many objective metrics (gas mileage and safety rankings) and subjective ones (friendliness of sales staff) when deciding among brands.
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But defaulting to mixed messaging rarely works
Each differentiation approach has a different focus in product marketing. In vertical differentiation, marketers focus on the features customers rank as super important. That could be price, bells and whistles, or anything that distinguishes the product in the customer’s mind.
On the other hand, horizontal differentiation revolves around letting the buyer know that “people just like you” make this choice. It’s designed to help the customer make a decision.
For example, a restaurant packages several of its menu items into a combo and denotes, “People with a big appetite prefer this option.” The restaurant built in differentiation even though the food items also can be sold separately. An online store could help the buyer decide by showcasing variety: “Here’s a rainbow of colors for your selection.” Or it might suggest a product with “Buyers like you purchased this item.”
Mixed differentiation balances both horizontal and vertical considerations.
Marketers often default to mixed differentiation because they don’t understand how they should differentiate their product market. They either don’t understand the customer well enough to know the ranked preferences or think they must invent differences because they offer a commoditized product.
Remember the failed “phablet”? Devices sized between a phone and a tablet sprang up over a decade ago. While larger phones and smaller tablets ultimately succeeded in the marketplace, the phablet moniker didn’t.
Marketers sometimes use mixed differentiation to get the best of both worlds. You see it in phrasing such as:
Efficiently unlock high performance
Fully integrated and modular
Transform your business while being able to focus on the basics
Powerfully complex and intuitive to use
Benefit from data-driven creativity (my new favorite).
This occasionally confusing differentiation shows up even in the most modern companies and marketing.
OpenAI’s product page, for example, features the headline “Transforming work and creativity with AI.” Adjacent to that header is the text, “Our API platform offers our latest models and guides for safety best practices.”
I don’t want to pick on the copywriting team, but I wonder why they separate work and creativity. Are they different? Is it important to transform them separately? Do the writers believe their customers rank those elements as most important? Or are the writers taking a horizontal approach to showcase AI’s variety of benefits?
In the page copy, they focus more on vertical differentiation by highlighting the qualitative features of their API platform to differentiate it from other generative AI products. But do they succeed?
Therein lies an inherent challenge with mixed differentiation – intentional or otherwise. It often amounts to just clever ways not to say much at all.
Storytelling can help you differentiate
Storytelling often shows up in content and brand marketing, where it lets you tell customer experiences more effectively or relate your brand’s origin story.
But storytelling also works to position product marketing differentiation. When done well, a great story connects and aligns audiences to bigger themes or points of view. It aligns those views with the marketer’s desired differentiators. Stories can help people care about things they didn’t know they cared about.
Tech vendor SAP’s nine-part podcast series Searching for Salai is a great example. The content campaign supported the launch of a product and service solution called Leonardo, which combined AI technology, blockchain, and the Internet of Things.
The podcast told the story of a time-traveling art history buff’s investigation into (and an interview with) a mysterious person who may be the long-time apprentice of Leonardo DaVinci. The time traveler demonstrates how innovation arises from the combination of technology, data, and people.
Can you guess which solution differentiators SAP wanted to focus on in their marketing for Leonardo?
Storytelling gives you the best of both worlds (irony duly noted). It lets you choose how to differentiate while helping you convince your customer to care about your differentiators.
Classic product differentiation is about trying to meet customers’ prioritized preferences. Great storytelling helps you create preferences that customers will prioritize.
It’s your story. Tell it well.
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Cover image by Joseph Kalinowski/Content Marketing Institute