Eight Steps to Establishing a Sustainable Competitive Advantage
About the Author:
Paul Wilton (editor)
CA with degrees in commerce, accounting and information technology. Paul worked overseas in the “Big 4” accounting firms and served as a director at Audit New Zealand before setting up his own consultancy. Author of A-Z of New Zealand Business Law, Paul has over 20 years of experience as a business owner and consultant. He joined FBA in 2004 and is totally committed to providing excellence in quality and value to our subscribers.
Why do customers choose to do business with you? Why would they not go elsewhere? Having dealt with you, how likely are they to come back again and again? Is there something you have that others do not, a point of difference that sets you apart from your opposition? Is there a gap in the market, a need that you can satisfy better than others?
These questions are basic, yet fundamental to the very existence of your business and its long-term prospects. In brief, your competitive advantage must be identified, understood, developed and nurtured for your business to thrive and grow.
Business is becoming more and more competitive and the face of competition is changing, making it all the more challenging for small business. Online retail is exploding and new start-ups are appearing all the time.
A recent study by One Click Retail found that Amazon captured 44% of online sales in the US in 2017 and 4% of that country's total retail sales figure. The trend is set to continue. What will the figures be for 2018?
The more similar your products and services are to those of your competitors, the more critical it is for your business to set itself apart as the preferred choice in your market. Establishing a sustainable competitive advantage is the key to your long-term success.
Businesses can distinguish themselves in many different ways, including:
Price: This is most common in businesses that sell generic products and brands that are readily available. Due to restrictive buying power, it is often difficult for a small business to compete on price unless it is super efficient or making substantial savings on rent and other overheads. Small business should be aiming for higher margins, while looking to strategies below for competitive advantage;
Value: By providing better service, higher quality, superior guarantees, proven results... Customers are prepared to pay more when the value is there;
Brand: In the context of competitive advantage, there is little to beat a trusted brand.
“Your brand is what your customers and
potential customers think about you.Your culture is who you say you are
and how you do business.”
Amber Hurdle, The Bombshell Business Woman
Exposure: For smaller businesses, the personal profile of the owners can also contribute to the brand. Effective marketing can catapult a business into a leading position, but how sustainable is it if the business fails to deliver?
Ethics: Buyers are becoming increasingly influenced by a firm's respect for the environment, reputation as a good employer, support of local suppliers, stated values and so on. Supporting an ethical business has a feel-good factor that promotes customer loyalty;
Niche: Targeting a specific market segment based on your location, specialist products or services, or for identified industries, hobbies, or interests, etc. A niche is created when there is a need that is being addressed poorly or not at all by others.
Creativeness: Having a unique focus, presentation, or way of doing business that appeals to your market. It is ideal if this does not rely on short-lived fads. Becoming cool or trendy will draw customers, but you will need to remain creative to sustain that advantage.
Innovation: Often the first entrant can have a head start in gaining market share, before others climb on the band wagon. Intellectual property protection such as patents can help to prolong the advantage.
Relationships: From strategic alliances to supplier and customer relations, those who are able to establish rapport and build win-win relationships will always have an advantage over others who fail to benefit from effective networks. A healthy work atmosphere with happy and well-trained staff can often make all the difference to external relationships.
The Eight Point Plan
The following steps will help you to establish a sustainable competitive advantage:
Understand your market and your position in it. Who are your customers, where are they located and what are their buying habits? What is it that they really want and value and why? What areas are not being well serviced? What do you do well and what can you do better? What more can you offer to delight your customers? Examine all areas of your business taking the above bullets into consideration. Look at what your competitors are doing. Consider options for market research and online surveys linked to customer rewards. Simply talking to your customers and others can provide invaluable information.
Identify your existing points of difference and draft a proposal to boost your competitive advantage.
Confirm what you need to do to implement the proposal Check the feasibility. Review logistical and other factors to gauge the effect on other areas of your business. Do the costing and anticipate the potential impact on profitability. Weigh up the pros and cons and adjust your proposal accordingly.
Implement the obvious, low risk, easy changes that do not involve risk and business disruption. As an extreme example: "Smile more!"
Test the proposal. Find out if your ideas have been tried elsewhere and to what effect. What lessons can be learned from this? Discuss your thoughts with customers and note their feedback. If the response is chilly, reassess. If enthusiastic, see if you can get advance orders.
Prove the concept. Plan a phased implementation to limit the risks, costs and disruption. Perhaps offer specials to your existing customers before launching it more widely in the market. Build on your successes, ensuring that you focus more on your points of difference. Do not neglect your traditional areas of competitive advantage.
Get the word out. Start within your business so that all staff know your strengths. Train them to focus on these when dealings with your customers. Build a marketing campaign around your points of difference. What good is being the best if no one knows about it?
Monitor what is working and keep asking yourself what else you can do to get better still and reward staff for innovative suggestions that you apply. Put a plan in place for ongoing review and continuous improvement.
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