Discovering Your Competitive Advantage
By Craig Wagener D. Optom,
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
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
So businesses can narrow their approach to either a cost focus or a differentiation
Scope of Business Products
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.
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
Productivity is at a high level
Strong negotiation techniques are used to make deals for the lowest production
‘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
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,
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
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
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
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
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
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.