So, you’re the best in the biz for your particular industry? So what… That is the reality. You could be the top-rated plumber in your area, the only software company in the country with a particular kind of tech, or an award-winning tourism operator, but that isn’t what gives you the competitive advantage. This doesn’t mean that these accolades don’t mean anything, but as impressive as they are, they aren’t enough to explain why your customer should choose you above a competitor. Let’s explain.
What is Competitive Advantage
Competitive advantage is that “something special” that gives a small business oomph. It makes their products or services more attractive than competitors and enhances their value in comparison to the competition.
This advantage can’t be replicated and makes the business’s products or services exclusive– even if they are similar.
Competitive advantage communicates your business’s strengths and benefits to the customer in a clear, simple and unique way that remains updated to the market changes.
It is important because it differentiates your business from others and creates an opportunity to outperform others in a fair, equal marketplace.
Definition: A fair and equal marketplace refers to a free market. This term refers to an economic system where prices, production, and distribution of goods are determined by voluntary exchange between buyers and sellers, largely free from government intervention. All prices are influenced by supply and demand rather than regulation. An environment like this allows businesses to compete with each other for the customer’s attention.
Having a competitive advantage allows your business to:
- Vie for the same customers
- Aim for higher profits
- Create brand loyalty
- Enhance revenue streams
Examples of Competitive Advantages for Small Businesses
Some examples of what might be an advantage for small businesses include:
- Access to natural resources not available to competitors
- Highly skilled labour or specialisation
- Strong brand awareness
- Access to new or proprietary technology
- Cost
- Differentiation
Components of Competitive Advantage
There are three components to your business’s competitive advantage. These are:
Value proposition: The benefit that your company is promising the customer in return for purchasing a product or service.
Target market: The group of individuals whose problem your company is attempting to solve through its products or services.
Competitors: The other businesses that provide a similar product or service to the same target audience, both in traditional and non-traditional markets.
How to Find Your Competitive Advantage
When you start your business, you are focused on start-up capital, following legal requirements and gaining customers – not on developing your competitive advantage. Not that it means you don’t have one.
Here’s how you can find your competitive advantage.
Step 1: Review the Market and Competitors
It’s essential to understand your market. This provides insight into customer behaviour, what drives sales to your business and why potential customers choose a competitor over you. It could be the price, ingredients of a product, or specifics around a product offering.
The aim of this exercise is to understand the customers through questions like:
- Why do customers buy from my business?
- Why do customers buy from my competitors?
- Why do potential customers choose not to buy at all?
Step 2: Identify the Benefit or Outcome
Customers purchase a product or service based on the benefit or outcome they expect from it. Buying a book? The outcome is to either learn or relax. Buying dishwashing liquid? The result is clean, fresh and hygienic dishes. Phoning an electrician? You want your electric appliances to work as they should.
By understanding the outcome that your customers are trying to achieve through the product or service, you will explain why they choose you over another customer.
Step 3: Investigate Change and Innovation
Another key aspect of competitive advantage is that businesses have innovation that is unique or elevates the company among others. Even if products or services are essentially the same, these innovations can be in packaging, service delivery or the experiences.
The Three C’s of Competitive Advantage
When it comes to competitive advantage, a term that is often referred to is the 3 C’s Model. This model was developed by Kenichi Ohmae, a Japanese organisational theorist, who aimed to create a strategic framework to assist business owners with building a sustainable competitive advantage.
The three C’s are noted as:
Customer: The behaviours, needs and preferences of the intended customer need to be understood.
Company: Internal strengths, resources and capabilities should be effectively leveraged.
Competitor: Analysing and responding to competitors helps the business to improve its market position.
According to Ohmae, looking at these three stakeholders and creating a balance between them will ultimately lead to the business’s success as it prioritises external market dynamics and the company’s value position.
Implementing a model that balances these three elements is essential. Since many businesses struggle with poor alignment, inefficient resource allocation and ineffective competitive strategies, the framework provides structure and direction to businesses for tackling these issues.
Here’s the crux of the matter: when small business owners talk about competitive advantage, they need to understand how the value proposition is provided to customers in the most convenient and resource-efficient manner. But that isn’t enough. Externally, they require a thorough understanding of what the market is expecting as well as providing.
