If your product doesn't stand out from the crowd, the marketplace will view it as a commodity and you'll be forced to compete on price - bad news for a business eager to boost its bottom line.

The problem is that standing out is easier said than done. Commoditization is becoming an increasingly familiar problem in some industries, leaving small business owners scrambling to price their products at a competitive level. Rather than trying to compete on price, you can beat the system and avoid the commodity trap by altering the market's perception of your product. Here are five ways to differentiate your product and avoid being lumped in with the rest of the pack.

Identify Unique Characteristics

The first step out of the commodity trap is to examine what makes your product or service different from everyone else's. Do you have better customer support? Is your product designed better than the competition? Is your service tailored to a specific segment of the market? There's a good chance there is something that sets you apart from others who provide the same product. Finding your unique characteristics is crucial because it provides a starting point for the entire differentiation process.

Value-Added Services

Once you have identified your unique characteristics, you can begin to explore new ways to add value to your product. Use your imagination to consider how you can offer additional value while at the same time highlighting your product's strengths. Many add-ons can be done without a substantial cost increase. In fact, some of the best ones cost very little, yet draw a significant amount of attention from the marketplace.

Target Marketing

Another effective way to differentiate your product or service is to customize it for specific industries or market niches. Interview potential customers within a given industry to determine which features are currently missing in the marketplace and then tailor your product to meet their needs. If you play your cards right, it's possible to customize your product to the extent that it becomes a standard within the industry, safely distancing it from being perceived as a commodity.

Create a Network

An isolationist attitude in a glutted market will only make the situation worse. The businesses who rise above the competition are the ones who have created strategic relationships with vendors, consultants, and others who offer complementary products and services. The larger your network, the more likely it is that your product will find its way to the top of the heap.

Value vs. Cost

The surest way to avoid competing on price is to stop pushing price as a selling point. Instead, educate your sales staff to focus on the value of your product compared to the competition. Buyers are almost always willing to spend a little more as long as they understand the additional benefits they will receive from the more expensive product.