Developing a Competitive Advantage
Competitive advantages are the factors that allow your company to produce goods or services better or more cheaply than your rivals and are the key factors in what makes your business better than others.
If your competitive advantage can be easily copied or imitated, it is not considered a competitive advantage.
Your competitive advantage is the essence of your strategy, messaging, and marketing. According to Jack Welch, “If you don’t have a competitive advantage, don’t compete.”
Comparative Advantage vs. Differential Advantage
Comparative advantages and differential advantages are the two different forms of competitive advantages.
A comparative advantage is your company’s ability to produce something more efficiently, leading to greater profit margins.
One way to achieve a comparative advantage is to increase your economies of scale. An economy of scale is the savings in costs your company generates when it increases levels of production. Greater production leads to lower production costs because it more evenly distributes the fixed costs.
A differential advantage is your company’s ability to produce unique products or of higher quality than your rivals.
Examples of a differential advantage include advanced technology, patent-protected products or processes, superior personnel, and a strong brand identity. High-end brands, such as Louis Vuitton, utilize a differential advantage. Their high quality and uniqueness allow them to charge much for their products.
Economic Moats
Warren Buffet described sustainable competitive advantages like a moat.
The image is that your company is like a castle, and your competitive advantage is the moat surrounding the castle. The better your competitive advantage, the greater the moat. A large moat makes it nearly impossible for other castles (businesses) to attack your castle (company). This illustration provides an excellent analogy for what a sustainable competitive advantage can do for your business.
You can create your own moat by strengthening your brand, raising barriers to new entrants through tactics such as regulations, and defending your intellectual property through patents.
How to Create a Competitive Advantage
Competitive advantages are imperative to the success of your business. A competitive advantage technique can be found in many areas.
1. Find a focus area
Trying to be great in everything often results in excellence in nothing. Therefore, most businesses find it best to hone in on a focus area. This is a market niche in which your company can excel.
2. Employ the best talent
Your employees will determine the success of your business. Therefore, employing passionate, talented people is imperative. Search for talent and reach out. It’s better to wait for the right person than hire the wrong one.
3. Utilize rewards
Incorporate rewards into your business. You’re going to need to incentivize your employees to go above and beyond their call of duty by rewarding high performance. Examples of rewards include money or vacations.
4. Foster experience
Now that you have amazing employees incentivized through rewards, the next goal is to keep them wanting to work for your business for years to come.
The greater experience your employees have, the better your business’s customer service. Avoid a high employee turnover rate by making your work environment a place your employees will want to stay for years to come.
5. Speed
Customers care about speed.
The faster and easier it is to buy from you or use your services, the better. Look throughout your process to find ways to cut down on time and make it easier for your customers.
Dominate 2022 by establishing an effective competitive advantage!