In today’s day and age ruled by millennials and constant evolving technology, it’s easy to fall behind. In the blink of an eye, new and improved techniques are being used for companies to get and stay ahead of their competition. So, what is competitive advantage (besides a fancy set of words used to compare businesses)? According to Investopedia, competitive advantage is what puts a company ahead of its competitors to generate more sales, gain higher profit margins, and boost the bottom line. If business is slowing down, another company is stealing your clientele, or you’re just stuck in your old ways, it may be time for a competitive analysis.
Almost every company has a competitive advantage in some way, shape, or form. Differentiation is key. Find what makes your company stand out from the rest and identify why your company is preferred over others. A few ways to do this are by conducting primary and secondary research, performing a SWOT analysis, and identifying your target audience and the best way to reach them. While there are effective ways to discover what makes your business unique, there are many fallacies that have surfaced in the grand topic of marketing and business. Let’s correct some of these competitive advantage myths:
1. “Lowering the price point of a product will improve my company’s competitive advantage.”
While paying less will bring a smile to some faces, unless the savings are at least 20%, customers are unlikely to switch to a new product. Research suggests that the most effective business strategies for higher profit margins involve setting higher, rather than lower prices.
2. “If I narrowly define my audience, I’ll be sure to gain a competitive advantage in that segment.”
Once you define what it is your selling and what makes you special, it is important to know who it is that will be most likely to buy it. However, it is a common misconception that a narrow audience will ensure your success. Don’t forget to segment your audience into larger groups before precisely subdividing them, as many audiences have overlapping interests that you may unintentionally be omitting from your analysis.
3. “My competition are those who sell the same type of product as me.”
While this is true, sellers of the same type of product are not the only ones to look out for. Both direct and indirect competitors are key players. For example, if I am promoting a spa service, I must not only consider other spa service companies in the area. I need to consider any company that draws in my potential consumers during the time that they could be spending using my service. In this case, a hair salon would be an indirect competitor because my potential clients could go to the hair salon if they feel like being pampered, instead of using a spa service, especially if located in the same area.
4. “My employees are my competitive advantage.”
Yes employees are very important, especially in a world where 9 out of 10 times when calling for customer service, you’re connected to an automated service. However, employees are replaceable and your competitors can hire comparable, if not better employees than yours!
5. “A SWOT analysis will lead my company to the most appropriate strategy.”
SWOT is used as an attempt to categorize your company’s strengths, weaknesses, opportunities, and threats, in order to build a strategy. SWOT analyses are a great first step in determining the best strategy for your company to execute, but keep in mind that its not the only one. Unfortunately, two people can conduct a SWOT analysis for the same company and they will be entirely different. It is important to try and leave opinions out of the analysis and stick to historical performance and facts.
6. “I don’t need to look at what my competition is doing, and even if I did, I can’t copy their strategy anyway, so what good does it do me?”
This one is a two-parter. First, analyzing what your competition is doing is ABSOLUTELY necessary. How else are you supposed to compare where you stand in the market? It also gives you a chance to see what mistakes they are making and learn from them. On the other hand, analyzing the competition lets you also see what they are doing right because… you CAN copy them! Many of the most successful businesses have established their names based on someone else’s strategy. The difference? They did it better. Prime example: Windows. Bill Gates was responsible for fixing a software issue in Apple’s operating system and used/built on their source code to create the Windows operating system. Sure, if that same incident occurred today, there would be major copyright issues, but the bottom line is still the same- let other businesses make the mistakes first, then copy and improve upon them.
7. “We’ll be sure to gain a competitive advantage if we increase consumer engagement through social media marketing- its free!”
Nothing in life is free. Someone had to pay for it. Particularly in promotions, like BOGO’s for instance, the price of the “free” item/service is included in the price of the first item. “Free” is just an appealing tactic to get you in the door, and most of us have been victims of the word. However, while social media is the newest and evolving engagement technique, it is by no means free. Advertisements on Facebook, Twitter, and Instagram are paid for on a schedule, especially when boosted to an audience for a certain period of time. Sure, social media will definitely increase engagement, but be ready to dedicate a portion of your budget to it.
8. “Location is the key to a successful business.”
Have you ever heard of Bob’s Underwater Basket Weaving Company located next to the local marina? Neither have I. Bob apparently thought that being next to the marina would guarantee him success with the audience that already frequents there, so he barely did any advertising for his new store. What a mistake, Bob! What he should have done is engage in digital marketing, offer promotions, or partner with local businesses with the same consumers. Technology could have taken Bob’s Underwater Basket Weaving Company way further than being located next to the marina ever could have.
So whats the moral? Don’t fall into the common traps and misconceptions that have surfaced the marketing and business marketplace for recent years. Do your research. Look at your competition. Identify what makes you special. You’ll be better off than Bob.