September 2, 2014

Small Business Advice: Understanding your business' competitive advantage

Understanding your business' competitive advantage

Jerry Osteryoung | 12/16/2012

When I am meeting a business for the first time, I always ask them what they feel is their competitive advantage. Frequently, the only response I get is a blank stare – which is not good.

Understanding what gives you a competitive advantage in the marketplace is important for every business – first understanding it, then continuously communicating it to both your customers and staff.

I think every business has some kind of competitive advantage, but some are preferred over others. For example, having low prices is, for me, not a very good advantage in that it does not develop customer loyalty or attract the type of customers who will appreciate the other benefits your business has to offer.

A competitive advantage can be defined in terms of having superiority in one or more of three attributes. The first is product or service quality. For example, Apple clearly has a competitive advantage in bringing innovative products to market, and the big box stores like Wal-Mart and PetSmart bring the advantage of depth of inventory. These quality advantages really differentiate these businesses from their competitors.

The second type of competitive advantage is value. Notice that by “value” I am not referring to price, as price and value are not always linked. Value relates to the satisfaction the customer receives from purchasing the product.

An example of a competitive advantage connected to value would be high-end cars like Mercedes-Benz or Cadillac. These cars sell because of the value – or total satisfaction – the customer receives from buying them.

Additionally, value can be related to the brand image, as in the case of my favorite type of luggage, Tumi. Without question, this is expensive luggage, but the value I receive from owning it makes it worthwhile, especially because the pieces are almost indestructible. When I buy the product, I am also buying the brand, as the brand is where the perception of quality is really located.

The final competitive advantage is related to delivery. A great example would be the sole grocery store in a community. Clearly, this grocery store has a competitive advantage, as other grocery stores are located too far away to offer the same convenience of delivery.

Another example is Amazon with their Amazon Prime membership. For $75 a year, you get unlimited, free two-day delivery and free access to their complete library of instant streaming movies.

Yet another example of a competitive advantage related to delivery is a plumbing company that offers 24/7 service. Being able to respond to a customer emergency at 3 in the morning really is a strong competitive advantage. While this might be an expensive service to offer, it certainly is a differentiating factor when customers are selecting a plumber.

To be effective, competitive advantages must be positive for the customer and simple to articulate. Furthermore, perpetuating that competitive advantage must start from within. For example, if quality is an important competitive advantage, then measuring quality and sharing those results with staff to get their buy-in is critical.

By far, failing to communicate their competitive advantage with staff and customers is where so many companies fall short. If your business’s location is its competitive advantage, but you never do anything to highlight that, it really stops being an advantage. For example, being the only barbeque restaurant in 50 miles is a competitive advantage only if you communicate this to your customers.

Now go out and make sure you can clearly articulate what your business’s competitive advantage is to both your staff and your customers. This is essential to each and every business.

You can do this!

Other small business advice columns from Dr. Osteryoung are here. Note: Articles older than 30 days require registration (it's quick and free).

Jerry Osteryoung is a consultant to businesses - he has directly assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is an Amazon.com bestseller. He can be reached by e-mail at jerry.osteryoung@gmail.com.

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