Competitive Differentiation Strategy: How to win in a hyper-competitive SaaS market

Competitive differentiation is a strategic positioning approach that helps buyers distinguish your business from similar competitors and give them a solid reason to choose you.

Seth Godin, an American author and former business executive, was right when he said:

Surprise and differentiation have far more impact than noise does.

I mean, there are over 16,000 SaaS companies in the US. So it’s not far-fetched to say that you’re not the only one offering your service. If you ask me, your prospects have options; a long list of them.

So how do you differentiate yourself from other SaaS brands when you’re not so different?

Great question!

That’s what I’ll cover in this article. I’ll show you how to use competitive differentiation strategies to attract, acquire and retain customers. You’ll also see how other popular SaaS brands use these strategies to differentiate themselves from their competitors.

Differentiation Strategies for SaaS Businesses

Michael E. Porter, Author of What is Strategy, said:

Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value.

And so it is in the world of SaaS strategies. You have to be different from your competitors, even if you’re not so different. You have to find your unique value proposition.

Differentiation strategy aims to classify a product or service from other related products offered by competitors. Differentiation strategy gives your competitive edge as it provides customers with something different and separate.

But how do you come up with your differentiation strategy, you ask?

SaaS businesses can determine what makes them unique by finding their Unique Selling Point and conducting a SWOT analysis to define their competitive position.

We will touch more on creating a differentiation strategy as we go deeper into the article, but let’s talk about the types of differentiation strategies.

Types of Differentiation Strategies

There are two types of differentiation strategies: broad and focused differentiation strategies.

Without further ado, let’s jump into the broad differentiation strategy.

Broad Differentiation Strategy

The broad differentiation strategy is used by companies with a wide range of customers. Companies that use this strategy apply the “masstige” approach. Examples of such companies are Starbucks and Apple. These brands focus on creating symbolic experiences and prestige for their audience.

Starbucks sells personal rewards to the masses. People would spend extra money on Starbucks because of the buying experience. All Starbucks locations worldwide have a good atmosphere, great aromas, relaxing music in the background, and cool ‘baristas.’

Apple products symbolize luxury — extraordinary products for ordinary people. One of the biggest reasons people buy Apple is because the product makes them look and feel good.

As a SaaS looking to implement the broad differentiation strategy, your product benefits should be valuable and attractive enough that the price of the product/service would not prevent the masses from purchasing it.

Focused Differentiation Strategy

A focused differentiation strategy means developing unique product characteristics to a narrow target market. Lamborghini is a perfect example of a brand that uses the focused differentiation strategy.

They provide premium, luxurious cars to the upper-middle and upper class because they can afford them. They focus their marketing efforts on affluent consumers in western countries — a narrow target market.

Competitive Differentiators

Before we go into how to create a differentiation strategy, let’s look at competitive differentiators. There are many ways to differentiate your product/service from your competitors. However, how you choose to stand out depends on your customer needs and what you want your position in the market to be.

These are five examples of differentiators that can guide you in creating yours:

1. Price differentiators. Price differentiators refer to how you want to price your product/service. Including how much you want to charge, how often you want to collect payments, and what method you’ll use to take payments.
2. Brand differentiators. Brand differentiators are how your customers see, recognize and perceive your brand. These include your brand’s color, tone, voice, and style.
3. Product differentiators. Product differentiators are the unique capabilities of your product — its quality, features, design, and performance.
4. Channel differentiators. Channel differentiators refer to the ways your company gets offered to its customers. These include your marketing distribution channels and where your products are sold.
5. Service differentiators. Service differentiators are how your business creates a relationship with its customers — such as support emails, social media help, customer service calls, and live chats.

How to Create a Differentiation Strategy

And now, we’re there.

This is where you’ll learn how to create a differentiation strategy for your product or service.

Determine your differentiator

Previously, I spoke about differentiators and gave different examples. Developing a solid differentiator is key in creating an effective differentiation strategy.

Start by thinking about your product/service - what makes it unique? The experience, pricing model, or quality? Think of something you want your products to be known for.

Then you need to review your area of expertise — what value are you bringing to your customers? The narrower your expertise is, the easier it will be to demonstrate the advantages to your prospects.

Write your unique value proposition

Now that we’ve understood how to develop differentiators. Create a list of differentiators and choose the five most important ones to your brand.

You will be able to develop a unique value proposition by focusing on your key differentiators.

“A unique value proposition is a statement that expresses your product or service’s distinct selling point to your prospects.”

The statement should focus on your product, the problems it solves, its advantages, and the reason to choose your brand over the competitors.

Tell your brand’s story

Carmine Galo, Author and keynote speaker stated:

Successful organization and companies share the stage with their best storytellers. Brands are a collection of narratives. Unleash your best stories.

In other words, brand storytelling is one of the most effective ways to humanize your brand, build customers’ loyalty, and set yourself apart from competitors.

One good example of a brand that used storytelling as a differentiation strategy is Huggies.

Huggies knew that to compete with Pampers (the market leader at the time), they had to differentiate themselves and give mothers enough reason to choose them before arriving at the hospital to give birth.

So how did they differentiate themselves from Pampers even when they’re not so different?

Storytelling.

Huggies used another approach. After over 600 studies proved hugs help to stabilize babies’ vital signs, ward off illness, build immune systems, and improve brain development, the brand started a campaign to leave no baby unhugged.

The “No baby unhugged” campaign caused a 30% increase in sales for Huggies and an engagement rate 300% higher than industry benchmarks.

The campaign’s end-result proves the power of storytelling in developing a differentiation strategy.

Differentiate or Die!

As the SaaS market continues to grow and products become more homogeneous, developing a differentiation strategy is a no-brainer for the growth of your SaaS business.

Follow the tips in this article and create your competitive differentiation strategy.