What is Competitive Advantage and How to identify it for your Business?

 Competitive Advantage

Remember, when you last visit a grocery store to purchase shampoo, a face wash, or toothpaste. You had chosen a specific one to buy amongst many brands available on the shelf. Why did you choose that particular shampoo, face wash, or toothpaste? The answer is that a particular brand belonged to a company having a competitive advantage over its market rivals. And this competitive advantage made you select that brand. This is a very direct and simple example of the importance of competitive advantage. In this article, we will discuss in details

The Definition of Competitive Advantage

Examples of Competitive Advantage

Types of Competitive Advantage

How to identify the Competitive Advantage of your Business

Strategies for Competitive Advantage

A Case Study of Competitive Advantage

Definition of Competitive Advantage

The term competitive advantage refers to all the factors that make the customer choose your company's product over your competitor's. This competitive advantage makes your company's products or services more desirable to the customers. A business with a competitive advantage can deliver a product or service either unique in features or better in quality and price than its rivals in the same industry. It also allows the business to achieve higher profit margins compared to its competition for the business itself and the shareholders. 

The Competitive Advantage also works as an entry barrier for your business's competitors; it prevents them from entering your market. If your competitors can imitate it easily then it would not be considered a competitive advantage. It may be a tangible asset as advanced technology, more skilled team, easily approachable location, etc. It can also be an intangible asset as a patent, intellectual property, and good customer experience and market reputation. 

Examples of Competitive Advantage

In any business, the Competitive Advantage is the attributes that enable the business to outperform its market rivals. 

It includes

A geographic location, it would be an advantage to have better access to natural resources as minerals, metals, crops and sweet water, etc.

A cheaper power source, it will lower down the over cost of operations than your competitors

Highly skilled staff, team or trained labor, with their expertise enables you to produce good products and efficient services to the customers over the competitors 

Advanced technology or a unique method of production leads your business to reduce the errors in the production process and cut down the time of production.

Middlemen or distribution partners help you to get the right information for efficient marketing strategies to penetrate new markets

Protected by patents or sole distribution rights provide an advantage to offer exclusive products or services

The ability of mass production not only helps in reducing the cost of production due to economies of scale but also enable the business to deliver the orders faster than its competitors

The ability of customized production enables the business to produce the products or services more personalized way according to customers demand

Research and development to innovate new products and services with better quality and more affordable prices

Supply Chain and Logistics give you control over each phase of production and also enable you to deliver the orders properly

Ease of doing business, like online shopping and digital payment methods, as the customer wants easy and fast solutions

Brand image and market reputation 

Marketing and Advertising ways, 

With more variety in offering products or services, you can capture more segments of the market.

Good Customer service, with good customer service you can retain your customers even if they have some unwanted experience with your products or services.

Customer ownership, some companies associate some offers to a particular segment of the market like doctors, engineers, mothers, etc. Coca-cola printed the names on their products is one good example.

Experience in the business is not about how old your business is, but the experience of your business in a particular industry.

Entry Barriers are the obstacles for the other businesses to enter your market, it may be specific knowledge, economies of scale, high capital investments, etc.

Types of Competitive Advantage

 Competitive advantage is the market position a business seeks over its competitors in performance and market share. Before understanding the strategies to gain and maintain the Competitive Advantage, it's important to know the types of competitive advantage.

Regardless of the examples, we have discussed earlier. Mainly there are three types of Competitive Advantages

Comparative advantage, 

Differential advantage and 

Focus advantage.

Comparative Advantage

Your business can offer the products or services with more value as compared to your business rivals. It can be a product of higher quality with the same price, or of the same quality attributes at a lower price. The basic idea is that your business gains this competitive advantage in comparison to your competitors. On the other hand, the customer will find your products or services more desirable in comparison to your competitors. 

Most of the companies offer the products at a lower price as a comparative advantage, to gain this they cut down the cost of production in different ways, like the bulk purchase of raw materials, the economics of scale, etc. This cost base comparative advantage is mostly suitable for large-scale companies.

Differential advantage

This second type of Competitive Advantage can achieve when your business can produce a product or offer a service with unique features, appeal to the customers. These unique features will differentiate your products in the market. To gain this advantage your business needs to do extensive research to understand its target customers and their needs. This information leads your business to do research and development. This advantage could only be achieved by satisfying the needs of your target market. 

With more research and development, your business can innovate new products according to the desire of your customers. The buyers are willing to pay more with the guarantee that they are paying for the best available quality at this price. 

Focus or niche advantage

It is also known as segmentation advantage, it involves targeting a narrow selected segment of the market rather than the whole market. Businesses focus on a predefined narrow segment and craft the special offers according to their demand. Small businesses try to gain and maintain this advantage to compete with big companies. Remember the nature of this competitive advantage is also comparative or differentiated over competitor’s offerings but only for a predefined segment of the market.

How to identify the Competitive Advantage for your Business?

The competitive advantage is what your competitors do not have? To gain a long-lasting competitive advantage, you must find the one which can not be easily replicated or imitated.

To develop a competitive advantage for your business, you need to go through these 3 steps

Talk to your customers

Competitive analysis of your offers

Match your Business strengths with opportunities

Talk to your customers

The information from your customers is the customer feedback, it could be an information wealth for a business. Ask your existing customers about your business services and the prospect customers what they want to start a business with you. Prepare a questionnaire list as 

For existing customers

What they know about your company

Why they choose your products or services

What they like best in your company

What they think the company would offer

What are their suggestions to improve, if needed, the offerings

For prospect customers

Why they select the other company over your one

How they differentiate your offers from others

What can bring them to business with you

Are they ready to have a sample test from your company?

To ensure impartial information it is recommended to perform this task from someone outside the company. You must attend industry exhibitions or trade shows to gather the information. You can also conduct poll surveys on your website or social media.

Note this information to carefully analyze for the improvement or modification of your existing offers and the development of new offers.

Competitive analysis of your offers with the Competitor's offers

Benchmark your own product and check the products and services of your competitors deeply. Find out how they are different from yours while serving the same market. Figure out the reasons for the differences. These differences might be in price, quality, customer care, brand loyalty, etc

Do a competitive audit of your marketing strategies, try to understand the market tactics your competitors use. 

What are the different attributes of your competitor's product? 

What is the range of products your competitors offer?

What is the market share or business volume of your competitors?

How do they market their services? 

What types of advertising medium do they use?

How much do they appear on the internet and social media?

How do they handle the logistics? 

What are the market trends? 

What are the future offers of your competitors? 

How do they solve the problems in their services in response to their customer feedback? 

This Competitive analysis gives you insights into your competitors. This information enables you to formulate the strategies to not only face future threats from Competitors but can even gain a Competitive Advantage over your rivals. 

Match your Business strengths with opportunities

In the last steps, you have gathered a lot of information from your customers, prospect customers, and from the market about your competitors. Now you need to do a SWOT analysis to match your strengths with opportunities to develop a Competitive Advantage. 

You may adopt an offensive approach in developing a Competitive Advantage. In this approach, you identify the weak areas of your competitors and fill the gaps in the market by offering appropriate products or services. On the other side, you can adopt a defensive approach. In this approach, you have to use your business strengths to overcome your weak areas in comparison to your competitors. Or you can match your strengths with market opportunities and develop a differential competitive advantage. 

In a nutshell, with ample information resources from your existing as well as prospective customers and from the market competitive analysis you would be able to find out and develop the Competitive Advantage of your business to attract more customers or a segment of the market 

In my next post, we will discuss the 

"Business strategies for Competitive Advantage"

Please contribute your knowledge in the comment section, if there is anything I miss here.