Competitive - well suited for competition; having a feature that makes for successful competition.

Advantage –  any state, circumstance, opportunity, or means specially favorable to success, interest, or any desired end.

Why is competitive advantage important? Not just because Michael Porter says it is.

If you’re an employee, you have a competitive advantage. Maybe you’re nicer than everyone else, you could be a specialist in your area, you could know more about the company than anyone else, or maybe you are a specialist because you’re a generalist. When you apply for, and ultimately get a job, it’s because you offered something better than the other job seekers, even if it was because you had special knowledge, a friend of a friend perhaps, because you had top grades, went to a top school, or you had the best combination of skills for that job. Any and all of these reasons would have contributed to your differentiation- your competitive advantage, which led to you ultimately landing that job.

As an organisation, what is your competitive advantage? If you don’t have one then you should create or identify one now, otherwise you’re just trying to do what your competitors are doing. There is nothing more fundamental to marketing and business strategy than competitive advantage.

Say you have a competitive advantage. You know what it is, and your employees know what it is, but just because it’s so clear to you, that doesn’t mean for one second that your customers have the slightest idea. What’s the point of having a competitive advantage that no one knows about?

Michael Porter first developed the idea of competitive advantage for business. As Porter describes, there are two main types of competitive advantage, cost advantage and differentiation advantage.

If you have a cost advantage for a product or service, then you can communicate that advantage with your audience and potential customers. Taking brand image and familiarity into consideration, the hardest part is over, you’re cheaper than the others, congratulations. If you’re ASDA, one of the leading companies employing a cost advantage strategy, you need to communicate that with your audience and you’ll be on the road to riches. Offering a lower cost for a similar quality product or service is a surefire way to generate sales.

The problem with cost advantage is that it’s not for everyone; it can’t be for everyone. Our customers have such varied values, are looking for specialised and customisable products and services, and because only a select few organisations have the infrastructure in place to have a cost advantage, the rest need a differentiation advantage to be successful.

As a consumer, when you are choosing a product or service, what do you look for? It could be a low price, but other factors may influence your decision such as the values of the company, a particular product color available, or that one of the businesses is a large employer in your area.

When searching for a hotel for a future holiday, what factors help you make your decision? Price certainly isn’t the only important factor in everyone’s decision making or else we would only have low budget hotels. Consumers want the best value for what they can afford- but again, that all depends on the customer’s values. Due to the wide range of value sets, thankfully there is room for a wide range of areas of differentiation among businesses. As long as there is an audience who values that area of differentiation, they have an awareness and level of familiarity with your brand, and finally, that your brand communicates that area of differentiation, you will have customers.

Although it may sound simple and logical reading it in a textbook or on this blog, it’s not, trust us.

Along the road to differentiation, there are a number of challenges. Is your brand really any different? If all universities branded themselves using words and phrases such as excellence, innovation, high quality research, world-class professors- how does a student decide where to go? Of course people that already attend and work at X University know that it’s different, and better then all the other universities. Just because you know that your brand is different, or better than the competition, doesn’t mean that the audience will know, and that the audience will easily understand.

Once you’ve identified what that magical area of differentiation is- what makes your product or service unique from the others, Step 1 is complete.

Step 2 is to identify an audience that shares the same values as your brand.

Step 3, and perhaps the most difficult task on the journey to making the most of your differentiation strategy, is communicating it to your audience. The final step is to become one of the brands that your potential customers think of when deciding which product to buy. It’s having the right information available to them to help them make their decision- that your product or service best matches what they are looking for.

Think this is easy? It’s not.

Tags: competitive advantage, decision-making, differentiation, Michael Porter, strategy

This entry was posted on Wednesday, August 4th, 2010 at 5:37 pm and is filed under Brand. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.