Competitive Advantage

In any industry, businesses create a competitive advantage through price or the market. A price or cost advantage is tied directly to production costs, efficiency, or available technology. A competitive advantage in the market requires you to develop market differentiation—the aspect of your business that sets you apart from the competitors in your industry.

Companies that build and sustain a distinct market differentiator generally have unique attributes.

Competitive Advantage Using Market Differentiators:

Each of these companies has grown by using some kind of market differentiator, such as the following:
• Unique way to meet the needs of a niche market
• Brand recognition in the market
• Proprietary or trade secrets for operations
• Customized or proprietary software or technology

Companies with a price, or cost, advantage over competitors usually have internal strengths that are difficult for other competitors to replicate, including:
• Investments in production and equipment
• Expertise in designing products/services efficiently
• Access to less expensive materials
• Operational processes replicated consistently
• Outsourcing partnerships
• Patents and trademarks
• Unique combination of products/services
• Access to leading or scientific research
• Highly skilled and creative staff
• Reputation for quality and innovation
• Efficient distribution channels
• Effective hiring practices, low turnover, and highly skilled/knowledgeable staff
• Efficient production or operational systems
• Innovative equipment or technology
• Strategic alliances that support delivery to customers

Six Differentiators That Build a Competitive Advantage:

A true competitive advantage is one that is difficult for other competitors to copy and one that customers find valuable. Ultimately, your competitive advantage is why customers choose to do business with your company over anyone else. If customers don’t value your differentiator, then you don’t have a competitive advantage. Here are six ways your company can differentiate itself from the rest:

Core competencies – The core competencies can be used to develop an edge over the competition by providing products or services that customers value over products or services your competitors offer. Auntie Anne’s® specializes in making pretzels in every way imaginable. Rather than making a variety of products, founder Anne Bieler decided to focus on a competence she mastered at the age of twelve, baking pretzels. Core competencies are the strengths that allow you to meet the needs of your customers. Keep in mind: your core competencies may change over time, depending on the demands of the marketplace and the dominant position you want to have over competitors.

Reputation for superior products/services – Provide the best products or services in the industry or market. Your focus on quality will give you a reputation for expertise in specific areas. For example, Nordstrom® focuses on offering customers the best possible service, selection, quality, and value. Nordstrom sets the standard for department store customer service and a guaranteed, money-back commitment to meet customers’ expectations.

Niche market – Offer products or services to meet the specific demands of the target market(s). A niche market is a distinctive group of customers within a larger market or a smaller segment of a product line. For example, ITW® (Illinois Tool Works) manufactures specialty fasteners and products that are customized for its buyers’ needs.

Tom’s of Maine®, by positioning its toothpaste as a natural product, created a new category in the toothpaste market. Since no other toothpaste filled this need, the company was able to charge a premium price that consumers who buy organic or all natural products will gladly pay.

Unique distribution channels or delivery methods – Use a selling method that
is unique to the industry or difficult for competitors to use effectively. Provide
multiple products or services to the same or similar markets through an effective distribution channel.

Dell® sells computers directly to consumers and builds every computer system to order based on the customer’s specific needs. Dell uses a variety of suppliers who actually manufacture the computer components, but since Dell bypasses middlemen and retailers to sell to consumers, it maintains low overhead and passes the savings on to buyers.

Amazon.com was the first in its industry to use e-commerce to market and distribute books, music, and movies. Besides offering competitive prices, Amazon has an excellent distribution system and can get products into customers’ hands quickly. Amazon also developed strategic relationships with used booksellers to provide customers with the option of buying new or used books.

Organizational efficiency – Look for less expensive materials and more efficient equipment. Streamline your processes and find ways to make products or deliver services more efficiently. Outsource to efficient and highly skilled suppliers. Hire staff with expertise that can improve operations and efficiency levels. For example, Southwest Airlines® continues to be one the few profitable airlines because of its ability to provide excellent service, budget prices for fares, and quick turnaround on secondary routes. Southwest Airlines started a trend for cost-conscious, low-frills air transportation.

Unique technology and innovative products or services – Use unique, innovative, and leading technology to market, sell, and serve target markets. Consider using the Internet to offer products or services to local, regional, national, or global customers. Invest in technology to manufacture products, manage operations, or track customer information.

Apple does not produce as many products as Hewlett Packard® or Samsung®. But what sets Apple apart from its competitors is that it creates innovative products that initially are unique for the industry. Apple’s first success was its user-friendly computer icons—even three year-olds could use the computer. With the introduction of the iPod®, a miniature electronic gizmo that can hold 15,000 songs, Apple again provided a unique product to meet the diverse needs of the market.

Kauffman Foundation