Attaining Competitive Advantage

A business owner who wants more than just a job for life must design the business to attain some form of competitive advantage.

Your competitive advantage is what drives your customers to call you first instead of going elsewhere.

Competitive advantage leads to above average performance in one’s industry. Lack of competitive advantage implies at best an average performance, or being the same as the rest of the industry. I often hear from business owners that “business is slow, but it’s the same for all of us”.  As a result, they all tend towards the average profitability for the industry.   Actually, this means that business is slow for all who do not have a competitive advantage. Those with a competitive advantage do better in good times and in bad.

All businesses have their unique strengths and weaknesses, but there are two types of competitive advantage available to every business; low cost and differentiation.

Low cost means the ability to generate a service or product at lower cost than others because of some cost advantage. Selling at lower prices without a cost advantage will fail in the long term. Others will lower their prices as well and everyone will go broke.

Cost advantage may be achieved through economies of scale, proprietary technology, etc. Cost advantage is of benefit in commoditized industries such as chiropractors, accountants, lawyers, window installers, car dealerships and basically anyone selling a product or service that has many competitors selling the same thing. Instead of claiming you are the best, offer the same value at a lower price.

In a differentiation advantage, the vendor provides some value or attribute valued by the consumer that is unique and not elsewhere available. For that unique value a buyer will pay more. As opposed to low cost advantage, there may be several differentiation strategies available to all industry participants. For instance, lawyers may specialize in specific crimes; accountants may specialize in wineries, etc.

Achieving a differentiation competitive advantage means deliberately focusing on serving well defined, specific markets and rejecting those that will not see value in the differentiation.  We all can choose our competitive advantage, assuming we have one.  Not having one compels us to be an average performer financially, and   our business will remain stuck like its many competitors, with everyone waiting for better times.