We study the incentives of financial products to differentiate beyond performance, using mutual funds as our laboratory. We provide evidence consistent with product differentiation, reflected in fund prospectuses, enabling low-performing funds to compete for customers and charge higher fees by offering more niche products. Exploiting the issuance of Morningstar rating as a shock to perceived quality, we establish a causal link between low quality and increased differentiation. Funds receiving a low rating actively change their prospectus, increasing their product differentiation, which improves their survival likelihood. Much like other consumer products, mutual funds strategically pursue product differentiation to soften quality-based competition.