The key factor in maintaining long-term viability for any business is having a competitive advantage.
Probably the best book written on the subject is ‘Competitive Advantage – Creating and Sustaining Superior Performance’ by Michael Porter in 1985.
Essentially it boils down to 2 factors – in summary you win by being
1. Cheaper
or
2. Different
The definition of competitive advantage can be summed up as an enterprise gaining superiority over competitors by providing a service/product of the same value at a lower price or by providing greater value through differentiation and charging a higher price.
The low price scenario has many examples from airlines to supermarkets and the company that comes to mind on product differentiation is Apple.
Apple have done this brilliantly in recent times but the time maybe coming where the competition are starting to provide the same value at a lower cost !
The advice I would give to budding entrepreneurs and business owners on gaining competitive advantage is to decide which segment their product/service should be in – is it in a market niche that is so different that a higher price can be charged or it some something that is freely available so that cost becomes the most important factor ?
The biggest obstacle to following this advice is lack of information you may have on your competition. If sufficient market research isn’t carried out, your product branding and pricing will come unstuck !
I have seen business plans where statements are made such as ‘there is no direct competition for our product’……’we believe our product is better so we can charge higher prices’. Any investor will see through such statements since they will have the resources to research your markets.
So my advice is to follow these steps:
1. Research your market and know what the competition provides in value and pricing
2. Decide if you can provide better value or a better price through lower costs
3. List the advantages of your product
3. Decide how you pitch your product and brand it
4. Determine what you have to do to keep ahead of your competition
