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Articles of Interest

                                            Discovering Your Competitive Advantage

                                                       By Craig Wagener D. Optom, MBA, PhD

Most businesses are faced with more than enough competition. Business owners may often desire less competition in their particular type of business. For many, the American Dream means owning a business so as to create more opportunities for the owners’ families.  With the current economic situation, many have lost jobs and cannot find suitable replacement work. This drives more are more people to open their own businesses in order to provide for their families.

As industries expand there are more and more start-ups in related or identical areas. Current businesses may be expanding and opening more branch stores, adding to the number of competing stores in a particular industry. As this occurs, business enterprises are faced with direct competitors opening across the street, a few blocks away, or in the adjacent strip center. This means that there is greater competition for almost all business types. Rising frustrations and growing concerns among small business owners who are desirous of increasing business and trying to stay afloat. Oftentimes the business owner has no specific plans or strategies because they simply don’t know what to do about the increasing competition.

This article is geared toward helping small business owners consider some practical options in order to counter the negative impact of increasing competition. In order to counter a negative impact, owners are encouraged to view their business from a customer’s perspective. Asking themselves the following questions;

‘Why would a customer buy in my store as opposed to the competitor store’?  

‘Does my business offer higher quality/service or larger variety of merchandise than my competitor?

‘What is my competitive advantage’?  

‘How can I gain an advantage over my competitors’?

What is a competitive advantage? Competitive advantage is defined as a strategic advantage one business entity has over its rival within its industry. Competitive advantage is present when one business organization develops a combination of attributes that allows it to outperform its competitors. Competitive advantage is the ability of a business to stay ahead of the present or potential competition.

The superior performance reached through competitive advantage will create market leadership. Market leadership is a great place for a business to reside. This will ensure survival and prominence in the marketplace, which is ultimately the desired goal.

Customers need to perceive a truer and greater value in the products and services your business offers over those of the competitors’. Competitive advantage is created by either, offering lower prices or by providing greater benefits and services that justify higher prices.

Michael E. Porter (Competitive Advantage: Creating and Sustaining Superior Performance) suggests 4 business strategies, each of which can be adopted, in order to gain a competitive advantage.  

So businesses can narrow their approach to either a cost focus or a differentiation focus.

                                                          Scope of Business Products

                                             Broad                                  Narrow


                                            Cost                                                      Cost

                                        Leadership                                                Focus                           

                                     Differentiation                                      Differentiation

                                        Leadership                                                Focus                           

Differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments, while differentiation focus and cost focus strategies are adopted in narrow market or industry segments.

Cost Leadership

If a business seeks to become the lowest cost producer in the industry it will have the flexibility of being able to adjust its prices to be equal to or near the average for the market and still enjoy the highest profits. So if the emphasis is focused on minimizing costs, a business who is the lowest–cost producer in the industry may also have the advantage of being able to discount its prices to maximize sales and stay ahead of the competition simultaneous to increasing its market share. This strategy applies to a broad market with an objective to produce on a large scale with a business exploiting economies of scale with ‘standard type’ products with relatively little differentiation that are accepted by the majority of its customers.

Business owners who seek this type of competitive advantage will likely utilize the following components:

Productivity is at a high level

Strong negotiation techniques are used to make deals for the lowest production prices

‘Just-in-time’ methods are used to trim down production costs

Use of best technologies to make the production process most effective

Well-defined and concise distribution channels

Differentiation Leadership

If a business seeks to lead through differentiation, it will target a large market and aim to achieve its competitive advantage across the whole industry. The strategy involves feedback from buyers. It uniquely positions the business to meet the highest priority criteria of those buyers. It seeks to add value by offering consumers additional features and benefits. Pricing here is often at a premium, justified by the fact that well-explained reasons listing the benefits over competitors less differentiated products. This is vigorously advertised to consumers.

Components to achieve this methodology are:

Product superiority and high quality

Additional features and benefits are offered e.g. higher durability, reliability, and warranties

Strong product branding creating strong consumer recognition and need

Very effective industry-wide distribution making the products readily available

Superior and consistent promotional and advertising activity

Examples of this strategy are clearly seen in global brands such as Kleenex, Band Aids etc

Cost Focus

Businesses using a cost-focus approach will seek to dominate the market through a lower-cost advantage in a small or narrow market segment. Products are basic, yet will satisfy those consumers whose needs are met by the knowledge that their purchase was at a lower cost than competing products. Oftentimes these products are very similar to the higher priced featured market leader who has spent the additional monies creating brand recognition and market domination.

This is achieved by:

Consistently keeping costs (both physical and overhead) under control

Products offered are basic and are very similar to successful well know brand names

Effective advertising of the availability of a lower cost option

Maintaining profits through production and distribution cost control

Recognizing that volume is an essential component to success

Differentiation Focus

In differentiation focus strategy, a business will seek to achieve its advantage within just a narrow market segment. It recognizes that consumers have different needs and desires that are not being met in competitors’ products and services. This strategy creates a market niche whereby consumers realize that their needs can be met by a specialist type business who seeks to add value through this differentiation. Price is usually not an option as consumers are more than happy to pay premium prices for products that are seen as superior because they meet those individual needs and wants.

Components to make this strategy work are:

Creating a market niche  of desirable products

Marketing the business as a small ‘boutique’ operation

Adding value through differentiation

Tailoring products to meet varying consumer needs through multiple options

In summary…

To have an edge over a business competitor, a business must seek to add value.

Porter identifies this as the ‘value chain’ and describes it as “a value system of vertical activities including those of upstream suppliers and downstream channel members”.

This is achievable by creating activities in a way that adds overall value compared with competing businesses.  Superior value is thus created through either lowering costs or delivering added features and benefits through differentiation.

Seek to implement some of these strategies in your own business to create a competitive advantage over your competitors, in the product and services your business offers, and see your business profits reach new heights.

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