How to differentiate your product

Part 2 of Anthony Pierri's definitive product positioning framework

👋 Hi, it’s Kyle and I’m back with a 🔥 edition of Growth Unhinged, my newsletter that explores the unexpected behind the fastest-growing startups.

As it gets easier to build software and AI products, it gets harder to differentiate them. Thankfully, Anthony Pierri of FletchPMM has helped 300 B2B startups better position their products to break through the noise. Now he’s sharing Fletch’s proprietary positioning framework (and positioning canvas) with the rest of us.

This is the 2nd and final part of the 6,500 word series. Don’t forget to catch up on part one — building your positioning strategy and choosing your target customer segment.

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Your positioning strategy consists of two choices:

1. Who is your target customer segment?

2. What is your differentiation?

Having covered the first choice, we’ll now focus on choosing your differentiation.

Differentiation is essentially answering how you stand out and offer a different and better solution for a customer’s particular use case (or how you improve on a given product category).

Differentiation has four core elements:

1. a competitive alternative

2. the problem of the competitive alternative

3. how you do it differently (your product’s features and capabilities)

4. why that way is better (the benefits achieved through these features and capabilities)

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Element #1: A competitive alternative

Your competitive alternative is what customers would use if you weren’t in the picture, and who (or what) that might be is driven by the maturity of your target segment.

If you are going after an immature market segment, then your competitive alternative is likely a process, an ill-equipped tool, or some combination of both.

For example, Slack focused on the target use case-based segment of those doing internal company communication. Their chosen competitive alternative? Email.

Loom positioned their product for the use case of “updating your team,” offering a better solution to replace the competitive alternative of “meetings.”

Basecamp didn’t focus on one enemy (like emails or meetings) as its competitive alternative, but chose a collection of processes: “Ditch the ineffective ‘stuff scattered everywhere’ approach.”

If you’re positioning within a mature market (i.e. in a known product category), your competitive alternative is other vendors in the same category.

Arc Browser launched in the mature category of “web browsers,” and positioned directly against Chrome, the market leading web browser.

Linear launched in the mature category of “issue tracking tools,” and positioned against other issue tracking tool vendors (most notably, Atlassian’s Jira).

Figma launched in the mature category of “interface design tools,” positioning against other vendors (such as Sketch and Adobe XD).

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Element #2: The problem of the competitive alternative

Choosing your competitive alternative is more of an art than a science. However, the goal is very clear: you want to pick an enemy that is relevant and relatable to your target customers and that paints your product in the best possible light.

Let’s return to Slack for a moment. While they chose “email” as their initial competitive alternative, they could have just as easily chosen another internal communication tool to anchor against — papers memos perhaps, GChat, or even meetings.

However, email provided the most natural reference point and was a constant source of frustration for office workers (if you’ve ever been on a massive email thread with coworkers “replying all,” you know the feeling). This competitive alternative helped Slack’s features and capabilities (i.e. “channels,” “instant message style threads,” etc.) shine most acutely. If they had compared Slack to GChat, the standout features wouldn’t feel as unique or differentiated — and the market would have been exponentially smaller (since there were so many fewer users of GChat than email).

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Element #3: How you do it differently

Once you’ve chosen your competitive alternative, you must explain to your customers how you are different (and why that is better).

In general, there are two different approaches to differentiation:

1. Differentiation by degree

2. Binary differentiation

Differentiation by degree

Differentiation by degree means you’re offering essentially the same product or service as your competitors but with enhancements such as being faster, better, or cheaper. Your goal is demonstrating that you improving on these existing solutions in measurable ways.

Let’s look at a few examples:

Differentiation by degree: Superhuman

Superhuman positions itself as the fastest email client — period. While it performs the same fundamental function as other email clients like Gmail, Yahoo, etc. (i.e. sending and receiving emails), it differentiates by offering superior speed and efficiency in the form of keyboard shortcuts, snippets, and other time-saving features.

Differentiation by degree: Freckle

Freckle, a former client of Fletch, differentiates itself by being easier to use than its competitor Clay. They offer similar functionalities, but Freckle anchors against the steep learning curve of Clay and its focus on technical users. Freckle instead focuses on non-technical users, using a similar positioning strategy of Canva (i.e. being the design platform for non-designers).

Both Clay and Freckle can do the same things… but the way these do things makes all the difference for their different segments. While Clay leans into its deep flexibility as an asset, Freckle leans into its out-of-the-box usability.

Binary differentiation

Binary differentiation involves offering something fundamentally different from your competitors (i.e. “they do X, we do Y.”) This type of differentiation creates a clear, often stark, distinction between you and the alternatives, which can lead to a unique market position.

Here are a few examples:

Binary differentiation: DuckDuckGo

Unlike other search engines like Google or Bing, DuckDuckGo doesn’t track user data. This is a fundamental difference that goes all the way down to the business model. Google relies on data collection for advertising revenue, while DuckDuckGo prioritizes user privacy using only keyword-based advertising that doesn’t rely on tracking.

For much of the market, this won’t create a meaningful difference to switch from Google to DuckDuckGo. However, for DuckDuckGo’s target customer of privacy-minded individuals, this is a world of a difference. In 2021, TechCrunch reported that DuckDuckGo was doing $100M in annual revenue.

Binary differentiation: Campfire

Jason Fried’s Campfire offers a team communication tool similar in functionality to Slack and Microsoft Teams but with a key difference: it’s a one-time purchase, and you can host it locally. This contrasts with Slack’s SaaS model requiring ongoing subscriptions.

Again, the business model of Slack would prevent them from switching to this model. Will this matter to many of Slack’s users? Definitely not — the majority are not in the market to host their own software.

However, there is a non-trivial number of companies that have deep privacy needs (think government agencies, investment firms, etc.) who cannot use Slack unless they could host it themselves. For them, Campfire offers a viable alternative.

(There’s also an additional bucket of more technical users who would be attracted to the extreme price savings from only needing to pay for the software once rather than paying monthly in perpetuity for SaaS.)

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Element #4: Why your way is better

You might be thinking, “What if we’re in a crowded, mature market and don’t have meaningful differentiation?”

In such situations, you essentially have two options:

• A) Create real differentiation

• B) Move to an immature market

Option A: Create real differentiation

Creating real differentiation often requires large changes to the product or business model. Marketing and messaging alone likely won’t be sufficient if your offering is fundamentally similar to competitors. Here are four ways to create meaningful differentiation: price, product, delivery model, segmentation.

Price

People (especially on LinkedIn) love to hate on this strategy, but competing on price can be a powerful differentiator. For instance, Fathom offers a call recording service at a much lower price point than the expensive industry leader Gong. By making a similar service more affordable, Fathom appeals to cost-conscious customers.

To cite a non-software example, Ryanair is the largest airline in Europe. Why? It’s by far the cheapest. The CEO has even looked into making travelers stand for the entire flight in order to make them even cheaper.

Feature New Game-Changing Capabilities

Offering features or capabilities that competitors don’t have can set you apart. Figma did this by introducing real-time collaboration—a capability that Adobe XD and Sketch didn’t offer. This multiplayer functionality was a game-changer for product designers used to emailing files back and forth.

While this strategy is often very powerful, it can be difficult to pull off… especially in very mature categories. There is always a chance that once you launch a game-changing feature, the larger incumbents will simply copy it.

However, this isn’t always the death knell it seems to be. TikTok launched their “For You Page” (FYP), which was an infinite scroll of videos that were algorithmically selected for each user. Pretty soon, Instagram created “Reels” (their version of TikTok) and copied the FYP verbatim. Yet TikTok has managed to maintain a healthy growth rate and user base (1.7B monthly active users compared to Instagram’s 2B monthly active users) and is the favorite app among teens.

Delivery Model

Innovating how your product is delivered can also differentiate you. Zoom surpassed WebEx by providing an easy-to-use, downloadable app that users could start immediately, with free 45 minute options to encourage adoption. Their product-led growth model contrasted with WebEx’s more traditional sales approach and allowed them to spread like a virus at the beginning of the pandemic (pun-intended).

Targeting an Underserved Segment

Focusing on a specific, underserved market segment can help you stand out. YouCanBook.me, a Calendly competitor, targets users who need scheduling tools with support for international time zones and multiple languages. By catering to this niche, they address needs that broader services might overlook.

Option B: Move to an immature market

If creating meaningful differentiation isn’t feasible, another strategy is to shift your focus to an immature market. This involves identifying a segment where customer needs are not yet fully addressed by existing competitors.

Remember, effective differentiation is not just about being different—it’s about being different in ways that matter to your target customers. It requires aligning your product, marketing, and overall business strategy to deliver unique value.

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Bringing it all together

If you’ve been following along and attempting these exercises with your own company, so far you should have:

1. Chosen a target segment (either an immature segment based on a use case or a mature segment based on a product category)

2. Further refined this target segment with additional firmographic and departmental details

3. Chosen a competitive alternative (and mapped out its shortcomings)

4. Chosen your differentiation (either binary differentiation or differentiation by degree)

This can be captured in the Positioning Canvas. I have filled it out using my own consultancy’s positioning strategy below:

Rather than keeping this crucial strategy locked away in Sharepoint… we believe this message should be reflected directly in your homepage above-the-fold “hero” section.

The order in which you bring these elements to life in a homepage hero can vary. Sometimes, it may make sense to lead with the problem. Other times, it may make more sense to lead with the use case. Still others may focus on their product category and/or target customer type.

These different variations are messaging variations, rather than positioning variations, and can be A/B tested if you desire. The goal is to be as clear and compelling as possible.

Equally important to note is that you do not need all seven boxes represented—though you must include either the use case (if you’re going after an immature market) or the category (if you’re going after a mature market).

Here is how we have translated our positioning strategy as captured in the above canvas into a homepage hero section: