The "No Differentiation" Illusion

How do we position a product that doesn't have any advantages over the alternatives? Let's start by entertaining the idea that maybe we're wrong about that.

Sep 19, 2024

In my positioning process, we start with what we need to position against (the status quo and shortlist competitors), then list our differentiated capabilities and then map those capabilities to value for the customer. Differentiated value is the answer to the question”Why pick us vs. an alternative solution to the problem?”

One of the most common questions I get related to this is, “How should we position a product that has no differentiation?” I want to break this situation down in a way that might help you think through your specific situation.

When I hear “We have no differentiation!!” one of two things are true:

A/ The product and company have no important differentiated value to offer any customer beyond what the alternatives can offer or,

B/ The product and company are, in fact, differentiated from other solutions in the market, but the team fails to understand the customer’s point of view on that differentiation.

I’ve found it interesting how frequently this comes up and how often teams disagree about whether they are truly dealing with Option A or Option B. Let’s look at each situation.

Option A: The Product is Completely Undifferentiated.

In the first option, we have absolutely nothing that sets us apart from the other competitive alternatives. We deliver no value beyond what the customer is already doing today, and other alternatives deliver everything we do or more. There simply is no reason for a prospect to pick our solution over the alternatives.

If this is the case, revenue growth is a complete disaster. You will lose almost every deal where you are seriously considered - and you are rarely considered. Customers aren’t stupid. The buyer needs to go to their boss, procurement, legal, and finance department and explain why they picked your product over the others they could have. They can’t say - “The other products were better, but I just liked the vibes of this one, man.”

This is where B2B and Consumer products are really different. In any reasonably-sized B2B deal, the champion has to justify the deal to someone else, and there are consequences for making a bad choice. This isn’t the case when you are buying fizzy water or toothpaste - nobody cares if you make a poor choice! You simply don’t choose that one again. In a B2B purchase decision, however - money, company success, and personal reputation are at stake.

Positioning can’t fix your crummy product.

I get asked all the time how we position an undifferentiated product. If the product truly is undifferentiated, then positioning will not help you. Positioning is about making your differentiated value obvious to buyers. In this case, there is no differentiated value to focus on. The company needs to go back to the drawing board and figure that out. That could mean you are building new things into the product, but that could also mean a new pricing strategy, a new strategy around partnerships or distribution, or new services to wrap around the product - something that is going to give a certain type of customer a good reason to pick you.

A positioning thesis might help you solve this problem. The thesis is the positioning you are building toward based on your best guess about who your key competitors are, what makes your product different, what value you can deliver that the others cannot, and what types of accounts care a lot about that value. Your first wave of customers will either validate your thesis or give you information about what to adjust. Do your projected best-fit customers love your stuff? If not, why? Are there other customers that love you that you didn’t plan for? How might you adjust to meet their needs better?

Positioning isn’t a band-aid we slap on a weak product to prop it up in the market. Great positioning gives us a way to clearly market and sell a product that can win in at least part of the market. If our product doesn’t deliver any differentiated value, then we will have to build a better product.

But Maybe You’re Wrong

But here’s the interesting observation I have made after working with dozens of companies where at least one executive has told me that the product was undifferentiated - it’s very often not true. When we get the team together and work through the positioning, there’s often very solid differentiated value from a customer’s perspective, and we end up with a strong sales pitch. How does this happen?

Option B/ The Product is Differentiated, but The Team Doesn’t Understand it.

For products that are in-market and driving a decent amount of revenue, Option B is far more common in my experience. I have worked with dozens of companies where some proportion of the executive team has pulled me aside and told me the product is impossible to sell because there is no distinct value. The last time I heard this, the company was doing $80M in revenue and growing at 35% yearly. These facts simply do not add up! When we worked through the positioning as a team, it turned out the product was quite differentiated in several important ways - the problem was that some parts of the team were blind to it.

What is the root of this differentiation blindness?

I’ve seen a few root causes of this “we have no differentiation” hallucination. I will cover six that I have seen at least a handful of times.

1. Value blindness

Executives need to understand a lot about customers to truly understand the value a product might deliver to them. It is not unusual that as a company grows and new executives are added to Marketing and Sales, some of those execs will need to take some time to really understand buyers and how they behave. One interesting observation I’ve made is that sometimes an exec comes into the company with deep experience in a similar or adjacent market, and that exec assumes that the company’s current customers behave in an identical way. A smart senior executive will take the time to understand the new customer segment before claiming to understand what value your product does or does not deliver.

Back when I was an in-house marketing exec, if senior folks on my team started to complain about a lack of differentiated value, I saw that as a sign they needed to get out in the field more to educate themselves on why prospects were picking us. The more sales exposure marketing gets, the smarter the team will be about understanding value. I generally liked spending some time on sales calls, particularly first calls, to better understand how our message was landing.

Beyond being more involved in sales, I’m a fan of regular customer research to ensure we know what we think we know. As an executive, I also liked to have a personal set of customers that I could call on if I needed to sanity-check some of our thinking around value.

2. Product illiteracy

I’ve worked on many deeply technical products. On the surface, it may be difficult to see how one product differs from another, but if you understood the technology, you would more easily see what it unlocks for customers. This takes an understanding of what customers value (as we covered in the previous point), but it also takes some product smarts.

I think one of the key responsibilities of product managers (and product marketers) is to make sure that sales and marketing understand the customer value of the advanced features we deliver. I’ve seen a lot of teams where that isn’t true, and the result is the go-to-market side of the house is left to figure out why new features matter on their own and often just conclude the new stuff isn’t much beyond the old stuff. I’ve run many positioning workshops where the product team seems genuinely stunned that marketing and sales do not understand the value of key parts of the product. When a marketer or salesperson complains that a successful product has no differentiation, it’s often because they don’t understand it.

3. An inside-out perspective on competition

Vendors know much more about the competitive landscape than customers do. As a result, we are often tracking companies that our customers have never heard of. When it comes to winning deals, we only need to beat the alternatives a customer considers seriously.

They are not a true alternative if they don’t show up on a shortlist.

Software companies sometimes believe they have no real differentiation because they can google a company with an identical feature list. But that doesn’t matter. We have to think about differentiated value in the minds of customers. That means we have to be careful to make the same comparisons that they do. If there is a competitor that we believe has a better product than we do but never shows up on a customer shortlist - they don’t count. They are a ghost that only we can see. When (and if!) that competitor starts to show up on shortlists, our product will have matured as well, and our differentiated value may also be different. Until then, however, these ghosts should not factor in our definition of “differentiation.”

Delivering a combination of value counts, even when individual parts are not “unique.”

The other thing to remember is that the unique combination of value you can deliver matters, too. You may have one competitor who beats you at being fast and easy to deploy but doesn’t deliver cost savings, while a second competitor delivers better cost savings than you do but is much worse when it comes to deployment speed. Where is your differentiation? It’s in uniquely delivering the combination of the two value points in one product.

4. Loss obsession, win ignorance

We all hate to lose, but we particularly hate to lose a big deal we have been working on for a long time. In some companies, the team is so focused on trying to figure out why a deal was lost that they forget to look at why deals are won.

In B2B, we often get so excited about big deals that we fail to notice that the deal isn’t a great fit for what we do, and our efforts to close the deal will likely fail. These types of deals not only suck up a lot of energy and resources that could be spent on good-fit prospects, but they also have the potential to convince folks inside the company that the product is a loser.

Understanding why we win is more important than understanding why we lose.

Shifting the focus toward winning deals helps us understand why we are chosen so that we can amplify that in our marketing and sales efforts. We shouldn’t totally ignore losses, but we should be very careful to differentiate between losing a deal with a good-fit prospect versus losing a deal with a bad-fit prospect (that we should never have been chasing in the first place).

We need win analysis much more than we need loss analysis and if we can only pick one, I would strongly recommend you study the wins. We need to deeply understand why customers choose us over their other options - this is the core of great positioning and great marketing and sales.

5. Pernicious product pessimism

I’ve written about product pessimism before so I won’t dive deeply into it again here. The main point is that some product management teams become unreasonably pessimistic about how the product stacks up to competitors and that pessimism impacts the sales and marketing teams. Pessimistic teams are often

tracking an unreasonably long list of “alternatives” that are rarely seen in deals but perceived to be superior to our offering
pulled into difficult no-win deals with bad-fit prospects, leaving them convinced we lose deals more than we win them
doing deep loss analysis without doing win analysis, leaving the team overly focused on how to catch up versus gaining an understanding of where the product currently leads
see their job as building a catchup roadmap that ignores the reality of why customers choose the product today

Left unchallenged, this pessimism will infect the sales and marketing team until half the company is convinced the product is miles behind the competition, even while the company is winning deals and growing.

Like the previous point, the cure for product pessimism it to make sure that the product team is exposed to a lot of winning situations so they understand our true range of competitors and our differentiated value from the customer’s perspective.

6. Sloppy segmentation

Related to most of the above points is a problem I often see with teams - a very loose segmentation. In B2B, we never try to sell to everyone in the market. We are looking for prospects that are a good fit for the value that we can uniquely deliver.

If the team attempts to sell to everyone, it may not be easy to see our differentiated value clearly. That’s because it’s not valuable to everyone. Features are very context-sensitive in terms of the value they can enable. A feature in one company’s context can create a problem, while inside the context of a different company, it can deliver great value.

Value depends on the company's context.

I worked at a startup where we believed IBM was one of our main competitors (it turns out we were wrong about that - see point 3), and we used to make fun of a certain IBM product where there was a drop-down menu with 52 choices. 52!! “Look at that lousy user experience! Ours is so much easier to learn and use!” we howled to our upper mid-market clients. A few years later, I landed at IBM and watched a sales rep demo that exact same dropdown menu to a Fortune 100 CIO, and his pitch was, “Look at the incredible cross-enterprise flexibility that is already baked into this product! Who else could deliver all 52 of those things!?” What looks bad for one market segment can look great for another.

Our segmentation should not be based on wishful thinking.

If we have an overly broad definition of a best-fit account, then we can fall into the trap of thinking our product doesn’t have enough differentiation to win across the entire segment we defined. But that’s because our segmentation wasn’t based on which customers we served best - it was based on the wishful thinking of which customers we hoped to land. We really need to deeply understand our differentiated value first and then tightly segment the market to identify which accounts are a great fit for us.

In the work I do with companies, we start by identifying our true competitors, then listing our differentiated capabilities, and then developing our differentiated value pillars. Once we have that, we can identify the market segment that is a really good fit for our stuff. We ask, “What are the characteristics of a target account that make them really care a lot about the value they can only get from us?”

Beware the Segmentation “Oh Crap” Moment

When working through your segmentation to determine the part of the market where you have true differentiation, you might determine you have a different problem. I call this the “Oh Crap” segmentation moment. This is where you determine the segment you can best serve, but that segment is too small for you to realistically reach your revenue goal. Determining the segment where you should consistently beat the competition is great. But if that segment turns out to be left-handed car dealership owners in Saskatoon - your business is likely still doomed. In this case, much like Option A, you will have to go back to the drawing board to figure out a way to address a market big enough to sustain you, at least in the short term.

Saying we have no differentiation can be a lazy cop-out.

OK, maybe that’s a little harsh. But I’ve rarely heard a founder say their product is unsellable, whereas some marketers and sales folks seem to give up trying to figure it out far too quickly. Most weak positioning comes from unevenly distributed customer and product knowledge across the team. When some folks on the team say the product has nothing special, and others disagree - the reality is that it’s there, but only part of the team understands it.

It's a bit like that old parable where a group of people with blindfolds on touch a different part of an elephant. The person touching the trunk says, "It's a snake!" The person touching the tail says, "It's a rope!" and the person on the leg says, "It's a tree!" We need to bring the parts together to understand the elephant.

If we really want to understand what we've got, we need input from everyone. I think great positioning comes from bringing marketing, product, sales, customer success, and the founder/CEO together. We need everyone's input, and each group needs to understand what the other groups see.

What do you think? Have you seen this in your teams? Sound off in the comments.

Positioning with April Dunford

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