Creating a Competitive Advantage
A little competition can be a healthy thing. It can also be both costly and disastrous if you aren't up to par with others in your particular business or industry. How you handle competition can be a direct link to the success or the failure of your company. You can, however, significantly increase your chances of coming out on top by creating a competitive edge.
Having a competitive edge means possessing an advantage over your competition. This does not take the luck of the Irish, but rather some solid strategic planning. Before you can accurately identify your competition, it's crucial to first define and analyze your target market. What are you selling and to whom? Next, make a list of those companies trying to do the same. What are their strengths and weaknesses? Their strategies and goals? How do they draw in customers? What, if anything, makes them stand out from the pack?
If you don't have this vital information, get it quickly. You shouldn't live in awe of your competition, nor should you fear them, but you must find out who they are and what makes them attractive to current and potential customers. Assessing your competitors openly and honestly will play a key role in helping you develop a competitive edge.
Remember, winning companies aren't successful by accident, though often it may seem that way. A closer look usually reveals that most have sized up their target markets and zeroed in on a unique approach to meet their customers' needs, values and expectations. Through important considerations like location, product, services and product features, they have somehow found a fresh spin, a new way to offer buying incentives that similar companies either can't or don't offer.
Once you have developed a competitive edge, maintaining it will be a daily challenge. It will require you to look into your crystal ball and attempt to forecast where the trends and changes in your industry will come from, and what your company can do to stay ahead of the game. It will demand that you continuously track your competitors and their future plans. You will also need to recognize that through the course of time your customers' needs may change due to a variety of circumstances. Your company must be flexible and willing to change as well.
The following questions are designed to help you determine whether your company has a competitive edge:
- Have I clearly defined my company and its target market?
- Who are my competitors?
- What is my company's clear-cut strategy and plan for success?
- Do I regularly track my competitors' moves?
- Do I take advantage of my competitors' weaknesses?
- What have I learned from my competitors' mistakes?
- What have I learned from my competitors' strengths?
- Do I take advantage of competitive opportunities?
- Does my company possess a uniqueness that easily separates it from my competitors?
- Would I pay money to use my own product or service?
- How do my prices compare with the rest of my industry?
- Who are my customers?
- Do I have a loyal customer base?
- Am I sensitive to my customers' needs and requests?
- Are my employees trained in customer service?
- What trends do I see for my industry in the future?
- Do I have the capabilities and resources to compete in the market five to 10 years from now?
- What is my vision for my company five to 10 years from now?
- Gaining a Competitive Edge
- Define Yourself
- Define Your Competitors
- Identify Your Customers
- Personal Experience
- Marketing Strategies
- Maintaining a Competitive Edge
- Keeping Up With Changes
- Evaluating Your Competitive Advantage
I. Gaining a Competitive Edge
A. Define Yourself
Before your customers can get to know you, it's important to first know yourself and your company's mission in the marketplace. In today's highly competitive world, it isn't enough to simply say, "I own a card shop." You must define the type of card shop. Are you a card shop for everyone with wall-to-wall generic cards that can easily be purchased at other stores? Or do you specialize in unusual cards, thus attracting those people who demand cards that are unique and not readily available at other locations?
Ask yourself the following questions:
- Is my product or service unique, and if so, why?
- Is the way I operate my business unique?
- Do I service a niche market? Are there other markets that could benefit from my product or service?
- Are my employees a key asset that sets us apart from our competitors?
B. Define Your Competitors
Now that you have a clear understanding of who you are, you must make a list of all your competitors and track them on a regular basis. In order to compete, you should compile the following data about each competitor:
- What are their strengths?
- What are their weaknesses?
- What are their capabilities?
- Who is their customer base?
- What are their revenues?
- Are their profit margins growing?
- What are their promotional and marketing strategies?
- What are their current offerings?
- What are their future goals?
Gathering data on all of your competitors could, in itself, be a full-time job. To make it easier on yourself, you should realize up front that tracking each and every competitor every day of the week is probably an impossibility. Therefore, you should break your competition into categories and prioritize them, asking yourself who poses the biggest threat. The following are suggested ways to categorize your competitors:
Priority #1: Head-to-Head Competitors
These are the companies that compete most directly with you. Your product is similar. Customers compare you to them in terms of price, quality and service. These companies should be tracked on a weekly basis.
Priority #2: First-Tier Competitors
These folks compete with you, but not for everything. They may try to woo a particular kind of customer from you, or they may be similar to you only in a certain area. This is an important group to stay on top of because they may decide to expand and compete with you more directly. You should track them at least one to two times per month.
Priority #3: Indirect Competitors
These competitors tend to be in the background. You only run into them occasionally. Their products usually serve as alternatives to yours. But make no mistake about it, these companies are still definite competitors, vying for business. They need to be watched because there is no telling what rabbits they might pull out of their hats when you least expect it. It's better to be prepared. You may want to review these companies three or four times a year.
In tracking your competitors, it is important to chart their strengths and weakness. By comparing their strengths to your own, you will clearly see where the threats to your future business may lie. By examining their weaknesses, you may find direct opportunities for your company to capitalize on.
Though you will spend less time tracking some companies and more time tracking others, it is important that you track them all. A common mistake is to underestimate certain competitors. By closing your eyes to what is out there, you can put your company at a huge disadvantage. Far too often, it's the companies you tend to write off that suddenly make a huge push and threaten you directly.
It's unlikely your competitors are going to give you any more information about their companies than you would be likely to give them about your own. So, how do you find out precisely what they are up to? Thankfully, in this technologically advanced society, you don't have to be in the FBI or CIA to spy on other companies. You can easily find out how they are doing and what they are up to from a number of sources, including:
- Newspapers and magazines
- Trade publications
- Web sites
- Trade shows
- Suppliers and distributors
- Stock market analysis
- Government filings
- Shop or visit the competition yourself
Once you have all of the data, be sure to find a way to properly organize it. This is imperative for you to be able to see movement and growth of various companies over time.
C. Identify Your Customers
Once you have a handle on your competitors, the next important step is to clearly define who your customer base is. For more information on this subject please refer to the article Identify Your Target Market.
To clearly identify your customer base, ask yourself the following questions:
- Where do my customers live?
- Approximately how old are my customers?
- Are my customers primarily male or female?
- What is the income level of my average customer?
- What are my customers' needs?
- What motivates my customers to buy, i.e., price, quality, credibility, customer service, location, etc.
- When do my customers do their buying? Daily? Weekly? Monthly? Annually? Seasonally?
- How much research do my customers do on a product or a service before spending money?
- What services or products are my customers willing to spend more on?
- What services or products are my customers willing to spend less on?
- What are my customers' buying trends and habits?
A good way to identify what your customers want is to talk with them and really listen to what they have to say. Customer feedback can be a cheap and invaluable tool in creating a competitive edge.
D. Personal Experience
Chances are, in any given week you reverse roles and go from business owner to consumer. You may visit the grocery store or the dry cleaner, or eat at a particular restaurant. Conscious or unconsciously, you make decisions about which businesses will get your own hard-earned money. Stop and analyze the choices you make. Do you choose the big grocery store over the small corner market? Why? If there are two dry cleaners close by, do you tend to go to one instead of the other? If so, for what reason?
Make a list of all your favorite companies and ask yourself why you enjoy doing business with them. What is it about them that attracts you? Is it their prices? Their products? Their service? The fact that they know you by name? Do they clear up problems and correct mistakes in a timely, hassle-free fashion?
Now list the companies that you refuse to do business with. Again, ask yourself why. What has turned you off? Are their salespeople rude and unhelpful? Are their shelves scarcely stocked? Is their parking limited? Is the quality of their product or services poor? Are they overpriced? Do they not take your problems and complaints seriously?
Analyzing both the positive and negative personal experiences you have had as a consumer can significantly improve your own business. You may be able to implement similar policies of the things you liked and altogether avoid those that have steered you away.
In today's crowded marketplace, consumers have lots of choices. In order to gain a competitive advantage, you must give customers a reason to choose you over the competition. You must make it your business to see that your product stands head and shoulders above the crowd. While lowering prices is certainly a viable way to reel customers in, there are other things you can do to make your company unique simply by using a little imagination and creativity. The following are ways to differentiate your product and/or company from your competitors:
- Look at what your competitor has to offer. What new spin can you put on it?
- Assess your product. Can you add any new features that might make it more desirable or useful than your competitors?
- Think of new uses for old products or new ways to package or bundle your offerings
- Analyze your marketing strategy. Are there ways to use your promotional campaign as an advantage?
- Make sure your products are user-friendly and easy to order. Make it easy to do business with you.
- Can you provide exceptional customer service, hours of operation, guarantees, etc.?
- Are there any special services you can offer your customers that your competitors don't?
While there are those people who will spend top dollar on any given product, most people are price-conscious. Many folks are willing to shop around to see where their dollar will go the farthest. It is important to recognize that you may not always be able to be the lowest priced service and still maintain a healthy profit margin. However, there are still many ways to lure customers including some of the following techniques:
- Special offers for repeat customers and introductory offers
- Sales and discounts
- Financing packages
- Convenient return policy
- Money-back guarantees if customers aren't completely satisfied
Here is the golden rule: Your product or service is everything. Without it, your business is nothing. It is what your entire reputation will ultimately be based on. You can have the nicest business location, the lowest prices and the best customer service, but if you don't have something people want to buy, your business will, more than likely, go belly up. Therefore, it's crucial to constantly place your product or service under a microscope, examine it and re-examine it carefully. Ask yourself the following questions about your product or service:
- Does my product perform?
- Is it durable?
- Is it reliable?
- Is it fairly priced?
- Does it consistently live up to its reputation?
- Am I known in my industry for producing quality goods or services?
- Is my product easily recognizable?
It is important to understand that your product has a life all its own. Like people, it goes through a life cycle. First it is born, then it goes through a growth period; eventually, it may decline or die altogether. The following are ways to ensure that your product or service has the longest possible life:
- Create ways to ensure your product or service is in demand
- Make your product or service a trendsetter
- Think of innovative ways to encourage more people to buy your product
- Venture into new and different markets
- Add new features to your product
- Market a companion product
There may come a point where, due to circumstances beyond your control, your product is no longer in demand. Signs to look for include sharply dropping sales in spite of continued marketing expenditures, new technologies that have replaced those your product is based on, or changes in your customers' lifestyles or preferences. If that is the case, there is no point in continuing to supply your product. It is best to move on.
H. Marketing Strategies
Now that you have a fabulous product, it's time to take it out into the world. You would never think to venture into a blizzard without the proper snow gear. Why? You know you wouldn't survive. Likewise, you should never venture into the market without a specific strategy as to how you intend to sell your product. A good place to begin is with the competition. Look at companies with similar products and analyze how they have marketed them. In what ways have they succeeded? In what ways have they failed? You have the luxury of learning from their mistakes and benefiting from their triumphs. It's an invaluable tool. Don't overlook it.
You have heard the phrase, "nothing ventured, nothing gained." In other words, don't be afraid to try new things. There is something to be said for a fresh approach. Be inventive and come up with your own creative strategies. In devising your own plan, you may want to keep in mind the following:
- Remember to whom you are selling
- Focus on your product's or service's benefits rather than features
- Don't be afraid to toot your own horn
- Be sure your plan is attainable
- Have a back-up strategy in mind, especially if your primary one is risky
- Collect facts, figures and important data before you put your plan into action
There are many roads you can take when marketing your product. Ask yourself what your primary focus will be. Is it low cost? Is it product differentiation? Product uniqueness? Is it based on your reputation, having had success with other products?
These days, most markets are highly saturated. Without a clear marketing strategy, you will not be able to compete.
II. Maintaining a Competitive Edge
Congratulations, you have finally established a distinct edge over your competitors. That's the good news. The bad news is that you must now maintain it. Doing so can take a lot of effort and energy. Staying ahead of others in your field requires several key elements. First, you must monitor your competitors' capabilities. The following questions will help you determine how far your competition might be able to go:
- What is their customer base?
- Can they keep up with supply and demand?
- Are they in good shape financially?
- Are they expanding?
- How determined are they to conquer the market?
- Do they have the resources to eventually become number one in the market?
By analyzing your competitors' past and present through the data you have been tracking, it may be easy to see precisely what they might do in the future. In order to stop them in their tracks, you must be a step ahead, so figuring out their next move is key. Here are some areas it might be helpful to look at:
- Customer targets
- Revenue targets
- Customer service goals
Back to Outline
III. Keeping Up With Changes
As if your everyday life isn't hectic enough, you must also worry about the future. Accurately forecasting new trends, as well as which trends are here to stay and which will be gone tomorrow, can give you a huge leg up on the competition. How do you forecast trends if you aren't psychic and don't have a crystal ball? The best way is to talk to experts in your given industry. Beyond that, there are some definite outside factors you should be aware of that will most likely affect your business in the future:
The 1970s were different from the '80s, which were different from the '90s, right? Lifestyles change with time. Trends come and go. Predicting what will be important in people's lives down the road is no small feat, but it is achievable and can make you very rich. For example, the trend in the '80s was to work, work, work. In studying that trend, you could very easily look ahead and conclude that people would eventually run out of steam. Where would they go? A good bet would have been their homes. Thus, home supply businesses in the '90s skyrocketed as more people became homebodies, which created more demand for home supplies and decorations.
Technology changes all the time, and it is crucial that you keep up with it. Once some new and viable technology enters your industry, be sure to grab it because most likely your competitors will. Like you, they won't want to be left behind. If you can see the advances coming, and be the first to get in, you may be able to win over and keep your competitors' customers.
You can keep a few steps ahead of new technology by attending trade shows and conventions. Press releases on technology will also clue you in as to what's in store for the future. Also, it is a good idea to make sure your company is always ready to handle technological change.
Let's face it. Some years are going to be better than others, because of economic conditions. This can be key in determining when to place your product on the market. For example, if your product is more luxury-driven, chances are it's not going to do well during a recession. Regular dialogue with financial experts, such as stockbrokers and bankers, can help you predict how people will be spending money in the future. The economy can directly change your customer base, and you should always have a contingency plan for how to combat it.
Like it or not, the government will be involved in your business to a certain extent. Thus, it's important to read the newspaper and keep tabs on what your lawmakers are up to. Things can happen that force government to react, and this can greatly affect your business. For example, if the papers report that many children are getting hurt in front-facing car seats, the government may impose a law requiring all car seats to face backwards. Thus, this wouldn't be a good time to market a front-facing car seat, no matter how many nifty features it had. It would, however, be the perfect time to introduce a seat that faces backward.
Keeping up with changes in your industry is crucial to maintaining a competitive job. You can find the information by using the resources such as business and trade publications, trade shows, industry organization newsletters, and reports from industry consultants. Remember, it is your job to tell your customer about new and exciting things within your industry, not the other way around.
IV. Evaluating Your Competitive Advantage
Once you have established a clear, competitive edge, the tendency might be to coast for a while. After all, you have worked hard to get where you are, so why not sit back and enjoy it, right? Wrong. Picture yourself in the middle of the ocean floating on a raft surrounded by sharks waiting for you to make one tiny mistake so they can swallow you whole. That is precisely what your competitors are doing: circling around you, waiting for the moment you let down your guard just long enough so they can go in for the kill.
In order to stay at the top, you must continuously monitor and evaluate your competitive advantage. Constantly re-defining and re-inventing your company is essential. So how do you know when it's the right time to do this? Start by identifying specific changes in your marketplace, even subtle ones. For instance, if you own a burger joint, and people don't seem to be eating as much beef as they used to, then perhaps it's time to introduce a chicken burger or the vegetarian burger as a regular part of your menu.
As you make changes and introduce new and innovative changes, don't be alarmed if your competitors follow suit. Remember, imitation is the sincerest form of flattery -- and it makes good business sense. If you are continually evaluating your competitive advantage, by the time competitors begin to copy your strategy, you will already be three steps ahead and onto a different approach.
Another good time to evaluate your position in the market is as trends and technological advances come and go. It is safe to assume that you won't continue to be a threat to your competitors if your business is stuck in time. Remember, everything changes with time, and what worked in your industry today may not work tomorrow. In order to stay successful and competitive, you must change and grow along with your industry.
Also, don't be afraid to ask your customers for a report card. Check in with them on a random basis from time to time just to see how you are doing. If you are slipping in places, it may be time to re-evaluate your approach to certain things.
Finally, don't automatically assume that because you are ahead of the gang now, you always will be. The truth is, just as easily as your business is on top of the world today, it could be wiped off the planet tomorrow if you aren't careful. Remember, you must always be seen by your customers and competitors as extraordinary. Anything less, and you will have lost the competitive edge you worked so hard to create.
Jay Newborn, Cloud Marcus, "Target $mart: Database Marketing For the Small Business" (Mainstreet Marketing Software, 1996)
Hattie Bryant, "Beating the Odds" (Prima, 1996)
Don Reynolds, Jr., "How To Sharpen Your Competitive Edge" (Sourcebooks, 1994)
Barrie Pearson, "Manage Your Own Business" (Mercury Business Books, 1992)
Copyright ©, 2002 Virtual Advisor Inc.