You have an idea. Not just any idea, but a brilliant one. You proceed to build it. After what seems to be forever, you are ready to launch. You survey the marketplace to find a million and one products in the market… how will your product be differentiated from the riff raff?
Building successful products requires that the product can, in some way, exceed the existing competition in the market. Besides plain aesthetics and elaborate branding, your product needs to be significantly different from the inside out.
There are 4 distinct ways to do this:
- Be cheaper
- Be newer
- Be better
- All of the above
Cheaper is Good, But Not Great
Over time, products become cheaper through competition and economies of scale, though this is usually a last differentiator that a business would want to compete on.
Pricing yourself cheaper is bad in three ways – one, your margins are lower, so unless you are moving inventory in bulk, it is not sustainable. Two, a more established competitor can start a price war to be cheaper than you and can keep going far longer. Three, consumers will expect your prices to stay low and will be unwilling to purchase your Product 2.0 or pay more in the future.
An example is Windows 8 – launching to a lower than usual price. While the company expected a barrage of sales, consumers asked themselves why they should pay to upgrade to Microsoft’s new tablet-inspired OS when Windows 7 works just fine.
That being said, being cheaper is still a plausible product strategy if you can produce much cheaper than the market rate. This way, the lower price doesn’t eat away at your profits. Alternatively, pricing your product cheaper can be a limited time offer to entice consumers to try it out. This allows the early adopters to try out the product and possibly build them to become loyal fans.
Better, Even By a Little Bit, Will Do
In marketing and manufacturing terms, you need to create the Just Noticeable Difference. This refers to product improvements that are very apparent to consumers without being wastefully extravagant (i.e. they are at or just above the just noticeable difference).
A good example is iPod Headphones. Using white headphones to launch Apple’s mp3 player wasn’t merely disruptive for a category with commonly black headphones; it was also ownable as the iPod’s signature color. Further, the distinctive color publicly identified the consumer’s brand preference – a fact previously hidden in the consumer’s pocket – creating a tribe-like community and encouraging a wider audience to join the digital music revolution.
Usually, with better packaging and marketing for your product, these will be strong drivers of differentiation. Improving your product marginally through additional features is another way to differentiate. It could be through alterations to its functions or improved compatibility to other devices.
Change the Game, Disrupt the Industry
Coming out with something entirely new is, of course, the ultimate way to stand out. Creating something that has never been seen that eventually becomes ubiquitously used worldwide is every founder’s dream. The tough part is to have the vision for the product and carry it out.
Facebook, while not the first social network ever, has changed the world with likes and posts. Before Facebook, no one would imagine a website that would link the world together. Now, with one billion users and growing, it is hard to imagine living life without it.
One way to disrupt is to apply the Peter Thiel question to founders: “Do you have a secret?” This means: “Do you know something about this industry, or market, or product, that no one else does?” Facebook founder Mark Zuckerberg figured out the secret: an insight into human behavior. Zuck noticed that people like to share photos of their parties. Think long and hard about the secret in your industry.
The best companies usually do a combination of these three factors. This could mean launching a product that is cheaper and has more features, or one that is entirely new and better than existing products in the market, or something that delivers the same result but is cheaper.
As an entrepreneur, it is your job to develop products that can stand out from existing products in the market. You must do market research and make sure you understand your competition’s products and pricing.
Entrepreneurs are often forced into this due diligence by creating a business plan for investors. This is arguably one of the most important things to get right when you are developing your product.
As an Internet-focused entrepreneur, this can be challenging due to the pre-existing variety of options, but your biggest competitors can usually be found in your search results on your competitive keywords that you expect your product to operate in. Don’t over-complicate things by listing all the competitors… just figure out how you are going to stand out from the leaders in your segment.
Now go and build your cheaper, better and newer product!