While it would be an advantage to have a rapidly growing market in which even the poorest of the competitors could find space to grow, few markets offer this situation. Most businesses compete in either mature markets or markets with slow growth. Yet, even within mature markets, some companies manage to carve out a place and grow rapidly.
This was certainly the case with Starbucks, Office Depot, Walmart, Aussie Home Loans, Virgin Records, Virgin Blue, and Bendigo Community banks. They all found a way to compete which resulted in a significant shift in market share. Yet look at the products they sold; all well-established products which had been around for some time. All these companies found a new business concept or process which dramatically increased customer value compared to their competitors.
It is easy to see how an invention can provide a competitive advantage. A major change in functionality, a new attribute of performance or a major reduction in cost, will clearly unseat established firms. Innovation in product characteristics which taps into an unmet need can provide massive growth opportunities. At the same time, a major development in process innovation can lead to a raft of new products which can provide a first mover advantage which might give the business time to seize a leadership position in an emerging market.
However, if you have a product or service in a marketplace which is simply littered with comparable offerings, you have very little hope that your venture is going to gain the traction needed to support any significant level of growth.
The market place is crowded with ‘me-too’ products. With little to differentiate them, customers will buy on a whim or simply treat them as a commodity and buy the one which is the most convenient or the cheapest. In these markets, shelf space and price are the dominant competitive dimensions. However, unless you can control the shelf space or ensure you offer the lowest price, your ability to forecast and control sales is limited.
Your way out of this trap is to identify a niche market and develop products and services which better match the needs of the target market. However, if everything you do to be different can be readily copied with little effort, then clearly you are in a business which has little chance of any substantial growth.
Competitive advantage arises from having a superior position on one or more attributes which your target market values. In the case of customer value attributes, that superior position needs to be not only obvious to the prospective customer, but they must value it to the point where it is the major factor in their choice between competitive offerings. If the difference is strong enough and important enough for the customer, it is also the attribute which can drive a premium price position. In the case of internal operations, the attribute must result in a significant cost advantage which results in superior profit performance.
Few markets have customer utility and customer buying experience around a single dimension. Consider these aspects of the customer interface:
Product Utility
• Functionality How well does it do the job (specifications)?
• Safety Some products are safer to use than others
• Fun and Image Interesting colours, design, style and brand
• Environmental Does it impact the environment and has this been
taken into account in the design?
• Convenience How easy is it to put away, carry and use?
• Simplicity How simple is it to operate?
Purchase Experience
• Availability How easy is it to find and buy?
• Information How easy is to find out about the product and have
questions answered?
• Delivery What is involved in getting it delivered and picked up?
• Supplements What after sales help, warranty, training etc can you
access?
• Ease of use How easy is the product to use?
• Disposal How do you dispose of it when you don’t want it any
more?
• Maintenance How easy and expensive is it to get maintenance?
• Divisibility How easy is it to try before you buy?
While many of these attributes refer to physical products, equivalent attributes exist with service offerings.
Thus the quality of the experience itself is a dimension of many participant services. Customer service in terms of quality, consistency, friendliness, level of helpfulness, knowledge, and so on, can be used to differentiate different types of experiences. Atmosphere, ambience, noise level, security, the type of other participants, duration and mementoes, all alter the feeling during and after an experience. The key to service experiences is to work out how the customer expects to react and then to offer an exceptional experience along a dimension which the customer values and remembers.
Within any market there will be sets of customers who place different weights on the various attributes of the utility and the buying experience. In the end, you may have to make a choice between different attributes which are mutually exclusive or compromise each other. Thus portability may have to be sacrificed for greater productivity.
One dimension may be sufficient for you to create a niche market. Thus vibrant colors may not appeal to mainstream buyers but a fringe market may exist who appreciates unusual style and color. There may be a niche market in a rugged
version of the product for use in difficult environmental situations like building sites or uninhabited regions.
Another dimension of competitive advantage can come from specialist information. Thus many firms have developed expertise in bidding on government contracts or in consortium tenders. Others have developed deep expertise in a specific application. Some recruitment firms specialise in one type of business or one type of professional executive. Packaged travel providers often specialise in one region or one type of experience.
Many businesses have grown substantial market presence by solving an especially difficult problem. For example, this could be in servicing jet engines or putting safety systems into mines. The key to this advantage is to solve a complex problem which requires unusual expertise and perhaps specialised equipment.
Often these markets are not large enough to attract large corporations. Also the expertise gained in such environments often cannot be used elsewhere.
There have been many situations in the past where competitors have fought for market share along a single dimension. This has normally been in product specifications. Such things as capacity, power consumption, weight, pixels, size, accessories, or speed. In their race to be first to market on the next dimension of competition, they often forget that customers have many other attributes of value and that substantial niche markets evolve around those. Thus a product which has average performance but has unbeatable customer service will gather loyal customers and grow market share providing enough customers value customer service over other product attributes.
Only by finding a strong point of difference along an attribute which the target customer values, will your own products or services carve out a segment of the market. Clearly the most desirable position to be in is to have a product which not only fully meets the needs of the target customers, but has no competitor or near substitute.
Unless the business has a strong cost advantage, growth will only be generated by products or services which are differentiated from the competitors. Typically this differentiation will be based on some level of innovation in product, process or business concept. The innovation itself needs to be difficult to match over a reasonable period of time for the business to gain a leadership position within its
target market.
Growth businesses only maintain their position by staying ahead of their competitors. Thus they are very sensitive to what their competitors are doing and how they are positioning themselves within the market. A superior position can be readily lost if a competitor is able to match or exceed your position on the attribute you have chosen to compete on.
The smart business is proactive in delivering increasing value to customers.
Within their chosen market sectors, the most successful firms seek out the most demanding customers and work closely with them to provide an on-going stream of added value. These key accounts are often the reference point for other customers within the sector and their purchase decisions will highly influence others in the same market. By staying close to the key customers and by working with them to establish where products and services need to evolve, the firm has a direct connection to value leadership. The market notes the buying preferences of the leaders and thus marketing is more by referral than persuasive marketing.
This in turn can lead to greater marketing budget productivity. Growth businesses carry out continual competitive analysis to ensure their market is not being eroded by developments in other firms. This analysis needs to be matched with the target segment needs to ensure the firm’s products and services continue to provide better value than the competitors. The competitive analysis needs to be able to show very clearly why the firm’s products are preferred in some market segments to other offerings and to be able to offer reasonable proof of that assertion.
For a competitive advantage to be meaningful, it needs to be periodically validated by actual or potential customers. The difference must be meaningful and sufficiently important to the target customers that they have a clearly expressed preference for the product or service you are offering. Validation is also needed to ensure that the other companies that do have product offerings in the general market in which you are dealing do not have a close alternative.
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