In today’s competitive business environment, not every company engages in productive strategies. Many company executives do not focus enough on setting themselves apart from the remainder of the market in order to gain a competitive advantage.
One of the traps that unwary businesses fall into is summarized in W. Chan Kim and Renee Mauborgne’s popular book The Blue Ocean Strategy. The “red ocean” strategy involves driving marketplace prices down to where profit margins are pared down. This is an unsustainable strategy in the long run, even though companies may see positive short-term results.
Company executives want to know how they can compete without becoming trapped in a “red ocean” or damaging their business prospects to make a quick profit. Jean Claude Awwad, a serial entrepreneur, explains how small- and medium-sized companies can gain a competitive advantage and leverage their strengths to produce a positive showing in the market.
Gaining a Competitive Advantage
In the open market, most companies do not stand out. Companies that sell relatively equivalent products and services often find themselves competing directly with their peers. It can be tricky to differentiate themselves from the competition and to show customers why they should be dealing with their company specifically.
Businesses should focus on gaining a competitive advantage. They should make sure that this advantage remains for a sufficient period of time to make the investment of time and money worthwhile.
A competitive advantage could be defined as “the gap of costs difference between you and your competition when it comes to the client’s willingness to pay for a product and service, and the costs required to provide these products and services by you and your competitor.”
Buyers are motivated by cost, but they are also looking for new and different products and services. They want to get the most value for their money, and sometimes they are willing to pay a little more for a unique product or service.
Creating a Disruptive Product
Most small- to medium-sized companies do not have a truly disruptive product, so the methods of adding value are the best way to set themselves apart. If a company can create a disruptive product that taps into a new market, it will have an instant advantage over the competition.
Adding Value
One of the best ways for a small- to medium-sized company to gain a competitive advantage is by adding value to a product or service. Value-added products allow companies to make the gap between themselves and the competition wider.
Companies will want to set their prices competitively, but they also need to consider any extra value they add to their products and services. Customers want to know that they are getting more for less, but they are willing to pay more for premium products and services. Adding value allows companies to escape the “red ocean” trap and build higher profit margins.
Adding value also helps with the longer-term viability of a company. Having a unique product or service is an excellent way to make a company stand out.
Special Qualities and Rarities
Another excellent way to build value is by offering a “rare” or hard-to-find advantage in the marketplace. Rarities can include new inventions, patents, and exclusive market rights.
The quality and skill of a company’s staff can also be considered a rarity. Many buyers will turn toward the most skilled competitor when they are considering more than one option.
Expert advice and professionalism are two characteristics that help companies set themselves apart and add value. Customers are willing to pay more for enhanced services.
Bundling and Packaging
Companies that carefully put together products and services in different service levels often find that they have an easier time competing. At each level of purchase, customers can experience better advantages.
Frequent Buyer Programs
Frequent buyer programs work at all levels of sales. Many customers are familiar with the loyalty programs at drugstores and supermarkets, but high-ticket sales can also include frequent buyer programs
Training and Education
Another method of adding value is to provide education and training to the customer. Especially where software and hardware packages are concerned, this can present an advantage over the competition.
Customers appreciate the extra time and care that it takes to train them to use a product properly. A product or service is not of much use if it cannot be used properly.
Considerations for Creating a Competitive Advantage
Company executives may want to put these advantages into play, but they may not know how to adapt their products and services to a rare or value-added state. The following tips from Jean Claude Awwad can help a company formulate its strategy for adding value and breaking free of constant price drops.
Companies should know why customers choose their products or services. They should be aware of the unique qualities they bring to the market as a whole.
Without reflecting on these differences, companies will have a difficult time deciding how to enhance their services. Companies need to define their value in as much detail as possible.
Cost Advantages & Market Positioning
Cost advantages over competitors need to be defined. Taking an honest look at whether these cost advantages are sustainable can preserve long-term growth and survival. When prices are cut by too much, a company will not be able to survive.
Examining a company’s products and services for “rarities” is another key step toward determining competitive advantage. Companies should promote their “rarities” to their customers, letting them know in clear terms how they can take advantage of their unique market positioning.
Barriers Toward Duplication
Competitors should know the barriers toward duplication of their special advantages. If it is relatively easy to copy these advantages, it may be time to look for something else to differentiate from other firms.
Differentiating From the Competition
Competitive advantage has been broken down into its components. A strong correlation between cost dynamics, value, and differentiation need to be upheld. Alternatively, rarity, weight, and differentiation should be considered.
When a company can pinpoint the unique qualities that set it apart from the rest and determine how costs play into them, a competitive advantage has been gained. If a company can create a truly disruptive product or service, so much the better.
Becoming a Strong Competitor
Even though most small- to medium-sized businesses do not have a disruptive product or service, making an excellent showing in the market is possible. Using these examples of value-added methods from Jean Claude Awwad can help companies of all sizes leverage their advantage over the competition.
Understanding how to differentiate a company from others in its market sphere is the key to finding a competitive advantage. Even the smallest companies can find ways to stand out and play up these strengths to compete.
Interesting related article: “What is Competition?“