Starting and growing a successful business requires competing in a marketplace where competition is fierce and brutal. Identifying your business’ competitive advantage or niche that it will serve is an essential part of planning for and creating a profitable venture. The following are some classic methods of creating a competitive edge.
1. Filling an Unmet Need – The key word here is need. Offering a proven product or service in a market where it has never been obtainable before. Traditionally, an entrepreneur sees that a similar business is successful in a different market and replicates the model in a new one. But every product has to meet three criteria before it will sell a single unit: 1) a genuine desire for the product, 2) a need or purpose to serve, and 3) the customers’ ability to pay or affordability.
An unmet however does not need to be unoriginal. It could also be a completely new innovation where the customer never knew they wanted or needed the product before. For example the invention of the microwave took the need for cooking and offered the convenience and speed customers wanted.
2. Best Cost – The key word here is best not lowest. Offering the lowest price as a startup is generally not a good strategy. If you try to complete solely based on price your competitors will match your prices to the point where neither of you are making money. Most of the time your competition will have deeper pockets and will just wait until you go out of business and then raise their prices. Best cost means that you offer the most value for the price offered. Your price may be higher but the customer perceives they are getting a better deal for the amount of money spent.
3. First Mover – A tricky advantage to pull off is being the first to market with a new or different product or service. Being first to market will give you brand recognition and, if the product is well designed and high quality, a status beyond any new competitor in the marketplace…think iPod. It also gives you the advantage or innovating before your copycat competition catches up with your offerings…think iPod Video or iPhone.
4. Convenience – Location, speed, and flexible payment options are all characteristics that generate a competitive advantage. Location is difficult to duplicate especially in a highly developed area. Speed of production or process can be the result of a new system and technology. Flexible payment can be as simple as accepting credit cards to offering trade credit (30 day payment terms) to your best customers.
5. Customer Service – The knowledge base, friendliness and responsiveness all add up to excellent customer service. This is a typical strategy when trying to compete against the pricing power of big box stores such as Wal-Mart or Best Buy. It is difficult to pull off, but reaps great rewards for those entrepreneurs who can offer the highest level of customer service in the marketplace.
Regardless of which competitive advantage your business has it is important that your nice meets some specific well defined criteria:
· Has Value to the Customer – You may believe that a feature your product offers is of great value but if it is not important to the customer it is not an advantage.
· Is a Call to Action – You advantage has to be so great that it causes a customer to take action by calling you, driving to your store or looking you up on the internet.
· Hard to Replicate – For obvious reasons if your model is easy to copy your business won’t last long on its competitive advantage alone
· Easily Understood – If you need to educate customers on the benefits of your service then you are loosing sales because of lack of knowledge. In addition, the benefit has to be easy to communicate and easy to measure (preferably in dollars and cents).
Following the above guidelines to create a competitive advantage and then gauging them against the criteria laid out will benefit your company through higher sales and greater profits.