In a highly competitive global market, the long-term success of a company is determined by its ability to find a competitive advantage over its rivals. Finding a space within the industry that isn’t being exploited or a space were your business excels will give you a competitive advantage.
It could be your company’s product line, manufacturing process, relationship with suppliers and distributors, logistics, unique service, or something else completely. Pricing can easily be matched by a competitor and therefore, it is not a sustainable advantage. Similarly, good customer service and delivery are expected. True differentiation will allow you to find and retain customers who are less sensitive to price, allowing to increase profit margins. However, just being different isn’t enough. You need a sustainable competitive strategy.
An effective competitive strategy will allow a company to maintain a long-term profitable and sustainable position over its competitors.
Understanding Your Industry and Competitors
A competitive advantage answers the question: why should I buy from you?” When you have value creating products, services, or processes that can’t be imitated by your competitors, you have created a sustainable competitive advantage. Price, quality, knowledgeable employees, and good customer service are givens (your competitors are probably claiming the same), so these are not sustainable advantages.
- To understand if you have a true competitive advantage, you need to understand the industry and your competitors. Michael Porter, a Harvard Business Professor and Author wrote “How Competitive Forces Shape Strategy”, discusses five forces of competition, which can help you assess your competitive position and business strength within your industry. If your differentiator can survive these forces, it will provide a sustainable competitive advantage. They follow below:
- Rivalry among competitors—High rivalry among competitors through price discounting, new product introduction, marketing, and service improvement can limit the industry’s profitability.
- Threat of entry—New entrants and imitators put pressure on prices, costs and the rate of investment necessary to compete, which decreases profit potential for existing competitors.
- Substitute products or services—A substitute product that performs the same function as an industry product and offers customers an advantage (e.g., price, functionality, convenience) can erode industry profitability.
- Power of suppliers—Powerful suppliers may charge higher prices, limit quality or services, or shift costs to industry participants.
- Power of buyers—Savvy customers can play one company against another, demanding lower prices or higher quality.
Looking at the industry as a whole provides a baseline for evaluating your company’s strengths and weaknesses. To increase profitability, companies can take action against the industry forces, such as positioning your company where the forces are weakest (i.e., an underserved group), exploiting changes in the forces, or reshaping the forces in your favor (e.g., make it difficult for customers to leave though technology, convenience, services, etc.).
Implementing Your Competitive Advantage
If your analysis revealed that significant changes are needed that require new hires, staff training(s), policy or procedure changes, acquisitions, capital improvements, etc., you will need a plan or series of plans to cause change. Tracking and measuring the implementation is critical to ensuring they stay on schedule and are effective once implemented.
Communicating it to the Market
Once you have your competitive advantage nailed down, you will need a 20-30 second elevator pitch that effectively communicates your position speaking to the value you bring, not to your capabilities. Effective communication means that your audience understands what you are saying. Internal acronyms, jargon, unnecessary words, and complicated sentences just muddy the waters. Your message needs to be crystal clear. Simpler is better.
Once you have your message perfected, you must communicate your strategic advantage to the marketplace. Your plan should focus on your target market, marketing communications (direct mail, e-blasts, social media, blogs, case studies, phone calls, trade shows, etc), budget and schedule. Develop a plan with a schedule to push your message out into the marketplace. Ensure all your employees are familiar with your message as well. Up to this point your sales staff has most likely been selling your capabilities and may need training to sell your value. There are many resources available to assist with this, including SPIN Selling pioneered by Neil Rackham and Solution Selling first introduced by Frank Watts.
The key is to ensure your competitive advantage message is consistent in all forms of communication.