There are many factors that contribute to a company's success, from customer reach and business intelligence to product quality and unique customer experiences. However, businesses must not overlook sustainable competitive advantage strategies.
Competitive advantage is a specific, desirable characteristic that enables an organization to outperform its surrounding competitors. A successful competitive advantage strategy will drive margins in areas such as sales, profits, or clientele, improving a business's overall value.
While gaining a competitive edge can be challenging, establishing a unique business strategy that is difficult to duplicate can drive a company to success. Therefore, organizations should understand the different competitive advantage strategies and determine which one best fits their needs.
How Competitive Advantage Works
In order to develop a competitive edge, companies need to determine-
- What Exclusive Benefits Does the Company Offer?
Businesses need to provide customers with something that they cannot find elsewhere. This can include a unique product line, personalized customer experience, or high-quality services at a low price. Whatever the benefit may be, it must hold actual value.
- What is the Target Market?
Then, business owners must determine the best market to penetrate based on their customers. By collecting and analyzing customer data, management can discover consumer needs, preferences, and demographics.
By choosing the correct market, businesses can drive demand for their products and services, and promote economic growth.
- Who are the Top Competitors?
Once the market is chosen, management needs to research the top competitors. It is important to remember that competitors aren't just businesses with similar models or products. Therefore, businesses should thoroughly research the different competitors within their general industry and direct market.
7 Ways Companies Can Gain a Competitive Edge
In order to gain a competitive edge, businesses need to pinpoint or produce specific attributes that enable them to stand apart from the competition. The seven best practices include-
1. Cost Leadership Strategy
With competitive pricing strategies, companies can easily attract customers by offering products at their lowest cost. Large enterprises, such as Amazon and Walmart, have created a name for themselves in the retail industry with this method alone.
However, while this is feasible and effective for large companies, low pricing is not always possible for individuals or startups working in a deficit.
2. Differentiation Strategy
The most common focus differentiation strategy is branding, where a company must set itself apart from similar businesses with a brand name. For example, Nike and Prada created their own statuses within the apparel and luxury fashion industries, so consumers can easily differentiate them from similar items.
The key to using this method is determining the core strength that separates a brand image from its competitors. This skill can then be leveraged by increasing their exposure and perception of value among consumers.
For example, Prada offers the perception of luxury and wealth to their buyers, as their high price and celebrity clientele are already established.
3. Innovative Strategy
The innovative strategy requires companies to look at their services and brainstorm how they can do things differently. This method is most commonly seen in the medical field. For example, Insightec found a way to eliminate brain tumors without cutting into the body, reducing scarring and recovery time.
However, retail businesses can also innovate their customer service to promote convenience and personalize the shopping experience.
4. Operational Effectiveness Strategy
Some businesses focus on a service that they know they execute better than anyone within their industry. For example, FedEx utilized the operational effectiveness strategy when they began offering overnight shipping. Even though many competitors followed suit, they still remain among the top shipping companies.
For startups and individuals, this method requires an in-depth look into data analytics and operating systems to discover strengths and weaknesses.
5. Technology-Based Competitive Strategy
Industrialization has companies scrambling to find the most efficient way to produce, distribute, and market products. With new technology, many businesses utilize management systems and automation to improve their productivity and competitive edge.
For example, many warehouses have introduced robots to streamline unloading trucks, stocking, and order fulfillment.
6. Adaptability Competitive Advantage
Companies must have the flexibility to adapt to the ever-fluctuating market, economy, and demand in order to stay competitive. While large enterprises, such as Apple, have the resources to evolve with trends, smaller, niche companies may find this to be difficult.
Therefore, businesses need to find how they can incorporate adaptability into their services. For example, management can hire experienced executives that offer unique skills, such as marketing or business modeling.
7. The Information Advantage
No matter what focus strategy an organization wants to employ, significant data is needed to make informed decisions. Many companies use management software to generate key performance indicators (KPIs), insights, and trends.