Product Positioning for Startups

One of the significant decisions startups face is how to best position their product offering for market entry. The final decision is challenging even when you conduct extensive customer discovery and competitive analysis and speak with fellow entrepreneurs and industry experts. In this post, I will talk about the pieces of information that you gather throughout the venture realization process and how to integrate this information into effective product positioning.

Before highlighting the steps toward optimal positioning, let’s define them. A traditional definition of product positioning is the process of determining a new product’s position in consumers’ minds. This positioning process includes an in-depth understanding of the marketplace and differentiating how your product differs from existing customer options. This understanding is then applied to communicate your brand’s product image to customers.

As mentioned in an earlier post on marketing mix, your product’s position is the foundation for determining your pricing, promotional, and placement strategies. Positioning involves creating a specific image of your brand’s product in your target customer’s minds. This image must highlight the key benefits of your offering while demonstrating how it is different than competing solutions. The message must be compelling enough to move customers from interest to purchase to advocacy. 

For positioning to be effective, founders must consider several critical issues throughout the process. First, language and context matter. Founders must realize that how they frame their product dramatically impacts the customer’s mind. The words product innovators use and the context in which they place their products significantly influence the lens customers to use to compare and choose among all existing offerings. For example, if you frame your software as a note-taking solution, your customers see it in this light and compare it to similar note-taking applications. However, framing the same software as a knowledge management tool shifts the context by which customers think about its use case and whom to compare it to within the market. 

Quite frankly, most startups think about their initial product in a restricted fashion, thus limiting its market potential. How you see the customer’s problem versus how they see it almost always differs in the early stages. The same condition applies to effective solutions as well. Customers see problems and associated solutions vary depending on the context in which they are experiencing their situation. You must understand their context and design and market your solution to match the customer’s mindset. For example, I have worked with several founders who believe that focusing on sustainable goods will be critical to customers. However, after customer discovery, they conclude that customers prioritize other benefits higher than the sustainability factor. If the founder remains adamant about leading with the environmental message, they may be restricting their market (or they may need to shift their target audience). 

It is essential to understand that each target customer segment will see the optimal solution within their context, which may be very different than you imagine. In the early stages of product design and testing, founders have to balance the benefits and features that fit their target customer and be able to communicate these to match the customer’s context. As you go beyond your initial target market, the customer priorities may differ, leading to shifts in product design or positioning (and, at times, both). 

The above discussion leads to another vital issue, the need to stay focused on your target customer segment. In the early stages of new venture development, founders must carefully determine the best customer segment to engage in through early product design and market testing. Founders always find this challenging, but it is vital while validating your business model. Of course, the reality is more complicated. In the early stages, founders will not know the best customer to engage for early market entry. Customer discovery and marketplace research will help you make an educated determination. As I will discuss later in this post, you must tease out the differences in customer context and needs as you engage with various segments. During the customer discovery phase, it’s imperative to understand the customers’ perception of their needs and context. Before your product exists, you can ask them how they perceive existing solutions in the marketplace. What value do they see in current solutions, and what specific features are important to them?

Additionally, how do they perceive the differences between these solutions? Once you start to test your product in the market, you will ask all these questions regarding your product. More on this later. 

The Opportunity Statement

The first step in this journey is to define the opportunity you believe exists in the marketplace. As a starting point, founders must ask an essential question: What is the customer trying to accomplish? At the highest level, you want to consider whether the customer is hoping to do one of the following:

• Solve a problem
• Fulfill a need or want
• Accomplish a specific task, job, or goal

Once you have framed the opportunity in one of the above categories, you start considering the details. First, you are trying to articulate what the customer is trying to do and in what context. For example, where is the effort taking place if the customer is trying to accomplish a specific task? At work, home, school, etc., next, you want to identify any obstacles or challenges the customer experiences as they try to accomplish said task. Finally, in startup jargon, what are the customer pain points?

Customer Segmentation & Discovery

Early in the venture realization process, founders consider which customers they should target for early market entry. There are two criteria to ponder at this point. First, customers are actively looking for a solution, and second, those meeting the first criteria are most dissatisfied with current options in the marketplace. Based on these two conditions, founders develop and execute their customer discovery and market research strategies.

Customer discovery is a critical part of your positioning journey. In the early stages, you focus on the customer’s needs, pain points, and how they currently solve these challenges. During customer discovery, founders need to focus on refining their understanding of what the customer truly values in a solution. As you work towards a future solution, you find that various segments view value differently. In other words, your value proposition will most likely vary across customers. As you prepare for customer interviews and surveys, you should focus on what the customer values in solutions they have experienced in the marketplace. Also, do they value something that is currently missing in current options?

To enhance your knowledge about what customers value, founders want to capture behavioral characteristics that align with how you perceive their expected value from an effective product solution. One of the best ways to develop this understanding is to listen to their experience with current products and brands. What they like and don’t like in each product. Are there “must have” attributes that other brands possess or lack?

From a positioning perspective, you want to understand how your customers currently compare existing solutions. Why did they choose specific competing products? How do they describe the value in terms of benefits and product attributes? What market category do they perceive the competitors to be operating? The same or different? The responses to these questions will help you decide later what market category you should see yourself in and who your real direct and indirect competitors will be upon market entry.

Once you start early product testing, you can continue to refine your customer segment. It is essential to keep your customer base narrow initially, targeting those that best represent those who truly value the benefits and features of your product offering. At this juncture, you want to stay as narrow as possible but broad enough to meet early revenue goals. It is a challenging balance, but it is crucial to get it right.

Competitor Analysis

While founders conduct early customer discovery, they can also dive deeply into the competitive landscape. In the early stages, before you have settled on a solution for design and testing, you can take what you are hearing from your customer and then conduct a deep dive into the competitive landscape. The information from early customer engagement guides your thinking about how customers see competition. Again, this may differ significantly from your initial thoughts on the competition. However, don’t give up on your initial assumptions about the competitive landscape. Research competitors from both perspectives. Customer input is precious, but you must become the domain expert on your competition.

You base your eventual decisions about positioning on what you consider your key differentiators. What does your product do best? Your competitive analysis aims to identify what aspects of your offer are different and better than existing marketplace options. As a starting point, founders should conduct deep research on the competing products in the market. Make sure to include both established and emerging opportunities. Next, list all the product attributes and features of these competitors. Next, compare the feature list to what your customers have identified as essential or missing. This comparison allows you to isolate the critical attributes that already exist and those that are missing. This analysis provides a clear picture of where you can be unique and better than existing options.

Later in your product design and testing stage, you can isolate these differentiating features and build them into your product. As you show your early product iterations to customers, you will solicit feedback on how they see your offer versus competing products to see the unique features shine through the noise. Listen carefully to how customers describe your product’s characteristics and how specific features enable the desired benefit. At this stage, you may be considering many potential product features. At this point, this makes sense. You will begin to prioritize critical features during the MVP phase.

One final consideration at this stage is to decide what industry and market will best communicate your value to the customer. In today’s marketplace, this decision has become more challenging as industry verticals blend into new emerging spaces. I have lost count of the number of founders who started their idea as being in one market area only to decide on a different one later. These common pivots are because your product evolves, as do the markets themselves. When you are ready to enter the market, your earlier thoughts on the positioning may no longer be relevant. Framing your offering in the right market is vital to your positioning effort. When you establish your business in a particular market, you alert the customer on how they should think about your product in relation to other options. You are telling your customers which products they should compare you with, your key benefits, features, and pricing. These comparisons help tell your customer what you are all about and why they should consider your offer over others.

As you establish your marketing strategies, you will want to decide how to frame your business in the best market. The choice may be straightforward. Your product aligns with most of your competitors within the same market. However, you might consider identifying with an adjacent market. While the boundaries between markets can blur, you may want to place your business in a growing adjacent market. For example, you develop a new note-taking app. You can position it against other note-taking apps (a competitive space). Or you could frame your product as part of the knowledge management system market. Your customers now view your product differently, which may broaden your opportunities, making it more appealing to specific business customers.

The bottom line is that the market you identify your business which tells the customer how to best think about your product, its benefits, features, and value.

Early Product (MVP) Stage

A chicken and egg scenario. What comes first, product or positioning? They influence each other. Your understanding of your customer’s perceptions of competition, along with your research, shows where there are gaps in the market, benefits, and features missing or failing in some manner. This information drives your design focus. On the other side, once you have designed early versions of your product, you can solicit direct feedback from customers about how they perceive your value and how they compare it with the competition (and who they compare it with is critical).

As you plan to design and test an early product version, this is the perfect opportunity to learn how your customers see your offering. Founders should always plan how to engage the customer during product testing. In many cases, I suggest that before testing, you create questions that you want to ask during the testing period. To understand how customers perceive your product, you want to know what products they compare your offering. What alternative products do they have in mind? How do they see the differences? Responses to these questions help you to define what different and better means from your customer’s point of view.

Once several customers have had a chance to experience your product, you can determine the best way to position your offer’s unique attributes – features, and capabilities. With the information derived from your market research and direct customer experience with the product, you now know what product features and benefits to highlight.

Communicating Your Position

An important outcome of your MVP process is to work with your customers to develop proof that your product features drive the desired benefits in the customers’ eyes. How customers validate the feature and benefit relationship provides a way for you to articulate your position for marketing and branding purposes.

Many founders confuse the difference between features, benefits, and value. You must clearly define each and map how specific features enable benefits that lead to the value your target customer desires. At this point, I have founders create a table that maps out the relationships between specific features and the benefits enabled by said attribute. Additionally, you should consider how this feature-benefit relationship maps to the initial customer opportunity you selected early in the process. For example, does this product feature help the customer solve the problem or achieve the goal in question?

Once you have a clear picture of these relationships, you can consider how you want to communicate your position to your customer and the market at large. As founders consider their customer acquisition strategy, I suggest using a marketing mix framework, such as the Four Ps – Product – Price – Promotion – Placement. As discussed earlier, each of the four “Ps” is important and must work together. However, the first P, your product, is the foundational element. Formulating the product’s position in the market drives your decisions across all marketing mix elements. For example, your product positioning determines how you want your initial target customer to view your offer in terms of product attributes, benefits, and value. Additionally, you want to demonstrate how your product meets these needs better than current market solutions.

At this point of the process, I think it helps to draft a positioning statement to help communicate to all stakeholders how your offer fits into the market. While there are potentially many applications of such a statement, I see it more as an internal document to support marketing and branding decisions. In addition, these statements ensure you are communicating your offer to the market effectively.

A positioning statement clarifies to everyone who is the target customer and why they care. The information must identify the market and product category that will be the primary competitive landscape during early product deployment. As part of this statement, you are clarifying how your product’s unique features enable benefits vital to your target customer. Finally, you must clarify how your product differs from current market options. Sometimes, founders integrate a specific core competency that supports the differentiating elements of the offer, thus telling the customer that this is the right enterprise to solve their problem.

Many positioning templates on the Internet help a founder get started. Below you will find one I use in my classes.

A positioning statement can be structured like this:

• For (target customer or market)…
• Who (have a compelling reason to buy)….
• Our product is a (product’s placement within a new or existing category)….
• That provides (a critical benefit that directly addresses the compelling reason to buy)
• Unlike (primary alternative source [that is, competitor] of the same benefit)
• Our product (key difference or point of differentiation to the specific target customer)

The Benefits of Positioning

Keeping positioning in mind throughout the new venture realization process has many benefits. As a starting point, it forces the team to stay focused on customers’ needs from the perspective of the customer themselves. Their needs, behaviors and desired value should drive your product design and deployment. Internally, a strong positioning statement provides a solid foundation for your marketing mix and branding strategies. It guides your promotional and brand messages throughout the sales process and should help shorten the time from initial awareness to purchase.

A strong positioning message makes it easier to explain your value to all stakeholders, starting with your customers. As you build a strong understanding of your product’s position in the customer’s mind, you will be able to attract the right customer to gain early traction in the market. Additionally, providing clear expectations of what value your customer will get should reduce churn and increase advocacy.

Finally, investors are interested in how you position yourself in the market. Knowing where your product fits in the marketplace helps founders stay ahead of trends and respond to market changes intelligently.

Next Up

In upcoming posts, we will explore pricing strategies for new ventures, channel partner management, and the application of customer relationship systems in the sales funnel service.

Get a copy of Patterns of Entrepreneurship Management, 6th Edition, for more on this subject and other entrepreneurship topics.

If you enjoyed this post, subscribe to the Venture For All® Newsletter with exclusive video commentary by Dr. Jack McGourty.

Facebook | Instagram | LinkedIn | Twitter

© 2022 Venture for All® LLC. All rights reserved.