This paper has some enlightening info on innovation and competitive differentiation. Specifically, it covers three ways one can achieve competitive differentiation
"1. Operational Excellence aka Cost Leadership
Provide middle-of-the-market products at the best price and the least hassle.
2. Product Leadership
Provide the best product, period. Continue to innovate year after year.
3. Customer Intimacy
Provide unique solutions to customers by virtue of intimate knowledge of their needs. "
So, which one is your company doing? :-)