Develop your competitive advantage

A clear competitive advantage (what you are better at doing than anyone else) is crucial to your business being able to succeed.

1.

Analyse the competition

Once you know what your competitors offer, you can compare your similarities to identify your points of difference, then develop these into a compelling competitive advantage.

Uncover their strengths and weaknesses so you can make your product or service seem more desirable, more urgent, more practical or more appealing to the customer.

  • Use the internet and social media – competitor websites, Facebook profiles, and customer reviews can reveal a great deal about who you are up against.
  • Visit or mystery shop them – visit their business or consider employing a ‘mystery shopper’ (someone the competitor won’t recognize) on your behalf.
  • Order something – try ordering a product by phone or online to assess service levels. What did they do that was good/poor?
  • Talk to their customers – why do customers stay loyal to the business and what don’t they like? How can you use their weaknesses to your advantage?
  • Talk to their suppliers – suppliers can often reveal what competitors are up to, such as opening a branch, expanding or laying off staff. You may discover competitors you didn’t know existed.
  • Attend trade shows – competitors exhibiting at trade fairs will typically be handing out lots of useful information. What can you do better?
  • Use ‘foot research – spend time watching how many people enter a competitor’s business. Are they attracted by the location, the store design, or a combination of the two?
  • Their own advertising and marketing campaigns – anything they’re promoting or saying in the media or online. Often, they say too much!
  • Join business networking groups – this is an important part of keeping alert to market developments. Joining industry associations or business groups is a good way of discovering more about competitors.

What to find out about direct competitors

You’ll need to know:

  • Prices – it’s useful you know all about their pricing strategies so you can match or better or be able to explain why you’re different.
  • Distribution – the methods they use for delivering their products or services to consumers.
  • Brand – the values and messages they’re trying to convey with their images and branding.
  • Products/services – what they provide, how these are different from what you offer, and how they market them to their clients.
  • How they advertise – Where they advertise and the channels they use can expose market assumptions you can exploit or give an indication of whether they have a better understanding of the market than you, or simply tell you they have a scattergun approach that might extend to the rest of their business.
  • Loyalty – the techniques they use to get customers to return and purchase again.
  • Ownership – who owns the businesses you compete against and what kind of people are they? Research the owner and the industry as well as the company. Check out LinkedIn for a profile of the owner that might give a business track record, and use any statistical data on your industry you can find on the web to compare you and your competitor to industry norms.
  • Their customers – characteristics, why they buy, when they buy and anything you can learn to lure them away.

Be aware of indirect competition

Indirect competitors are those offering products or services that aren’t the same as yours, but could still satisfy the same need. You’ll have to think ‘outside the box’ to spot your indirect customers as they may not be immediately obvious.

One example of indirect competition to a newly opened restaurant is the local cinema (rather than another restaurant). Potential customers could choose to spend their money on a movie (increasingly a downloaded movie with Uber Eats) instead of a meal out.

There are always other options for customers to spend their money so it’s important to be aware of these alternatives.

2.

Conduct a SWOT analysis

A SWOT analysis is ideal to help you quickly see the pluses and minuses of your business.

There are four steps to effectively conduct a SWOT analysis:

1. Brainstorm everything that could impact on your business

Whether you’re looking at your business as a whole or assessing a new idea, define it as clearly as you can. The better defined the issue, the better able you’ll be in identifying relevant factors.

Strengths – what you are great at, or why customers buy from you and not the competition. These are factors that you need to protect and defend.

Weaknesses – things that you know could be improved and could cause issues if they are not addressed.

Opportunities – new ideas, markets or opportunities that you can explore to become a future strength.

Threats – external events, changes in your market, action by competitors, technology or changing customer preferences that expose your business.

2. Work the grid

Document all the issues you’ve identified using each of the four criteria. This is not always a linear process and you should feel free to jump around as ideas come to you. For example, as you’re listing strengths, you may realize that a serious issue exists that threatens that particular strength, becoming a threat.

3. Review the results

Think about each of these factors and how you might take advantage of those that are helpful and fix, mitigate, or eliminate those that are harmful. Rank them in order of importance and rank which you feel are easier to fix sooner than later, and those that are critical to getting right now.

4. Take action

Decide which of the ideas you’ve identified you want to take action, divided into short, medium and long-term plans, add a budget if it’s required and start implementing.

A SWOT analysis will help you to identify each of these characteristics for your business so that you can better understand what you’re doing well, what you could improve, and which external factors could affect your business.

3.

Define your Unique Selling Proposition (USP)

Unless you've been lucky to find a hidden gap in the market, your product or service is going to have to compete against other similar products and services for customers and market share. To compete, your business has to stand out from the competition – it has to have a unique selling point that you can use to encourage customers to switch from their existing provider.

Remember customers can buy just about anything (usually cheaper) online from around the world and compare your business with all your real (and imaginary) competitors.

So, what makes your business different?

Finding a point of difference – a unique selling proposition (USP) – and refining it into a profit-making business requires work.

Once you have a USP, refine it into a clear competitive advantage.

Take these steps as a starting point:

  • Write down what you know about your target customers. Good starting points are what they do, what motivates them and why they buy.
  • Write down what you do that your target customers really need — these are potential USPs.
  • Think about ignoring any USPs your competitors are already doing well — remember, you want to be unique.
  • Match potential USPs to things your business does well.
  • Interview target customers about which of the potential USPs best meets their needs.

Brainstorm possible advantages

Here are some of the methods businesses use to develop a USP. Some are more obvious than others. You can have more than one of course! The more the merrier.

  • The cheapest
    It’s not always the best tactic for healthy margins, but there is a market for demonstrating that you’re cheaper than everyone else. Try and back this up with why. Good reasons; sourced cheaper materials, deliver faster, buy in bulk, better systems and more efficient. Bad reasons; sourced poorer quality materials, employ under-qualified staff so pay lower wages, run-down location.
  • Focus on a niche
    If you can find a market niche and prove that you know more than anyone about the industry, it will help demonstrate a USP. No-one can exactly copy you (not yet anyway).
  • Quality of delivery
    Think about the quality of your products or services. Will your products last longer than your rivals? Do you have an exclusive license or a patent? Do you have superior after-sales service? Are you the most reliable?
  • Innovation
    List areas where your business is superior in terms of innovation and creativity. How are your products or services unique? Do you hold an extensive portfolio of intellectual property assets? Highlighting innovation could differentiate your business from its competitors.
  • Location
    If you have a great location (unless the competition burns you down) it’s hard to move you out. Make sure you protect your lease by negotiating longer terms, or rights of renewal way in advance of any lease expiration. If you own your own premises you remove any threat of having to move.
  • Unique or exclusive contracts
    You have an advantage if you can source products or deliver services that the competition cannot. For example, you’re importing products from an overseas supplier that promises to only supply your business or you have a contract of work that has you as the only provider.
  • It’s easy to be paid
    The more options you offer your customers for making payments, the better your competitive advantage will be. Being able to use mobile technology and online payments are what customers are looking for. Plus, if you’re offering a service-based business and your customers can pay on the spot, that’s going to improve your cash flow.
  • Online community or following
    Build up an online following from commenting in social media, blogging, talking at events and being known as a thought leader in your industry.
  • Unique or exclusive product
    You have an advantage if you can source products or deliver services that the competition cannot. If you’re competing against larger or similar businesses, can you establish a reputation for unique products people can’t find anywhere else?
  • First to market
    If you’re lucky enough to have developed something new then you can often be ‘first to market’ and take advantage of the initial surge in demand and be known as the ‘original’ version. Yes, this means competitors will be hard on your heals, so you’ll need more than one USP.
  • Environmentally friendly
    More businesses are successfully competing on their environmental record. Whether it’s using organic or recycled materials, having clear staff policies on reducing waste, sponsoring country-wide events or focused on building a sustainable world.
  • Local
    It could be an advantage to demonstrate that you are a locally based business, employing local people and using local suppliers.
  • Better supplier relationships
    Being on good terms with your suppliers and their sales representatives is an often-overlooked advantage. A good relationship could provide better service and support, promotional material, displays and signs, training for your staff, faster delivery, better return policy and early notification of specials or discounts.
  • Strategic alliances and joint ventures
    Alliances and joint ventures with other businesses can help gain better group discounts from suppliers and provide referral business.
  • Intellectual property
    You may have developed specific intellectual property that you can protect (patented process, trademark, design rights, domain and company name) or have intellectual assets that other businesses don’t (business tag line or slogan, knowing when industry budgets are set, how a certain industry works).

After brainstorming your list and making sure that your advantages are indeed superior to those of your competitors, develop a crystal-clear marketing strategy to communicate them.

4.

Protect your competitive advantage

Once you have decided on your competitive advantage, it’s time to communicate it in your marketing and start defending your position.

Safeguard what’s yours

The more successful your business, the more competitors may want to attack or undermine you. Steps to protect your competitive advantage include:

  • Have confidentiality agreements signed by all staff to reduce the risk they will tell everyone what you’re up to.
  • Visit an IP expert to see what you can protect legally.
  • Lock up any trade secrets in a safe.
  • List what is mission-critical to your business, then document how to ensure they will remain an advantage to your business.

Reduce the effect of competitors

Try to anticipate how your competitors will react to you encroaching on their territory once you start operating. They might make an effort to drive you out of the market before you get established. Ask yourself:

  • What tactics are your major competitors likely to employ when you begin competing for their market share, and what is your return action?
  • How would you cope with a discount battle if your competitors are larger businesses with possibly more cash reserves?

Register any intellectual property (IP)

If you’ve invented something, you may have intellectual property to protect. Your business name and logo also has potential value as it could get you recognized in the marketplace. Some types of IP include:

  • The appearance or shape of a product design – for example, Coca Cola’s bottle design is protected.
  • The slogan that defines a brand, such as Nike’s ‘Just Do It’.
  • A registered trademark – such as the Apple iPad, iPhone, and iPod.
  • Patents, if you have a new process or way of creating something.
  • Copyright on any words or designs.

Intellectual asset protection

Intellectual ‘assets’ are things that you can’t legally protect but are still important. For example;

  • Your business contacts and networks that provide referrals.
  • Business know-how on the way things are done or processes.
  • Knowledge of when customers go through their buying cycles.
  • Your (or key staff) experience in the business and to know ‘how things are done’.
  • A customer database that you use to keep in contact and encourage repeat purchases.

Often these intellectual ‘assets’ are more important than intellectual ‘property’ especially for smaller businesses that are not inventing anything completely new.

Create competitive barriers

If you have specific new ideas, brand or market position, then you need to prevent other people from copying your business idea, products or services as much as you can.

Try to create barriers against your competitors that will make it harder for them to compete. For example, you may be able to secure:

  • An exclusive operating license. If no other business is currently operating in the area, ensure your license is the only one granted.
  • A contract with a supplier that restricts competitors’ access to the same goods.
  • An extended lease if the location is important to your success.
  • Experienced staff with bonuses or profit shares to reduce the chance they will leave.

5.

Communicate your competitive advantage

You’d be surprised how many businesses have carefully worked out their competitive advantage and then decided to leave it as a best-kept secret.

If, for example, one of your main competitive advantages is ‘expert knowledge’, then you should be promoting this as often as possible through:

  • Speaking at industry events and then posting this into social channels.
  • Regular blogging on your industry topic.
  • Adding qualifications or proof of expertise in marketing and advertising material.
  • Having quotes and testimonials from qualified industry experts agreeing.
  • Place in your website ‘expert’ whitepapers or research.
  • Join social media communities and contribute thoughts and ideas.
  • Add a tag line (‘we are the experts’) to all physical items like letterheads, invoices, statements, business cards.
  • An exclusive operating license – imagine you are planning to operate an adventure tourist attraction and have managed to secure a commercial license to operate in a particular area. No one else is running a similar attraction at this stage, but if yours turns out to be successful, they might. Can you ensure your license is exclusive or that only a limited few will be issued?
  • An exclusive deal or distributorship – can you sign an exclusive deal with a particular supplier, effectively restricting competitors’ access to your products?

You kind of get the idea. Don’t let anyone guess what your core competitive advantage is.

Ask yourself – what image of your business do these communication channels project? Do they consistently promote the key competitive advantages listed above? Now is a good opportunity for you to take a fresh look at these marketing channels and make any necessary changes. For example, does your website effectively communicate your competitive advantages, and compel visitors to act, or does it just present your products or services and how to buy them?

Remember to regularly review your competitive advantage. The market changes, businesses come and go, and your advantage may have diminished over the last year. Ask your regular customers how you’re doing – they’ll let you know if your advantage is fading.

Other ways to help protect competitive advantage

To be sustainable long term, you must be able to defend your business and reduce the effect of competitors encroaching on your market.

For example, can you secure:

  • An exclusive operating license – imagine you are planning to operate an adventure tourist attraction and have managed to secure a commercial license to operate in a particular area. No one else is running a similar attraction at this stage, but if yours turns out to be successful, they might. Can you ensure your license is exclusive or that only a limited few will be issued?
  • An exclusive deal or distributorship – can you sign an exclusive deal with a particular supplier, effectively restricting competitors’ access to your products?

Try to create barriers against your competitors that will make it harder for them to compete.

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For informational purposes only. There is NO WARRANTY, expressed or implied, for the accuracy of this information or its applicability to your financial situation. Please consult your financial and/or tax advisor. Full legal disclaimer