Creating a competitive advantage

What’s your brand’s competitive advantage? Seems like a simple enough question, but not every business owner knows the answer. The bad news is, if you don’t know what your competitive advantage is, your brand isn’t firing on all cylinders. The good news is, if you’re looking to better understand the power of competitive advantage, you’ve come to the right place.

Your competitive advantage is what sets you apart—both from the competition and in the minds of your target audience. Defining and communicating this competitive edge is one the most powerful ways to convince customers to choose your brand over the other guy.

So, what is a competitive advantage? And how do you define one for your own business?

What is Competitive Advantage?

Competitive advantage is the capability or attribute that enables your brand to outperform its competitors. It’s the reason a customer chooses your brand over the competition. When asked the question “what is competitive advantage?” Philip Kotler, who some call the father of modern marketing, defines it as “a company’s ability to perform in one or more ways that competitors cannot or will not match.”

There are many types of competitive advantage, but the most important quality of a good competitive advantage is sustainability—that is, an advantage that’s durable over time and able to withstand fluctuations in the market and competitive landscape. Competitive advantage is an essential component of any comprehensive brand strategy.

Competitive Advantage vs Comparative Advantage

Key to any competitive advantage definition is the difference between competitive advantage and comparative advantage. While the two terms are often confused or used interchangeably, comparative advantage is technically a subset of competitive advantage.

A brand with comparative advantage is able to produce the products or services it offers more efficiently than other brands in the space.

If Brand A can produce equal or greater output as Brand B, working with a smaller input (labour, equipment, fuel), Brand A has a comparative advantage over Brand B. Comparative advantage, then, is a metric of what economists call “relative opportunity cost.”

By comparison, competitive advantage is any advantage that enables Brand A to capture more market share than Brand B. With that important distinction out of the way, let’s get back to unpacking the meaning and business value of competitive advantage.

Porter’s Generic Strategies

The preeminent thinker on competitive advantage is Harvard Business School Professor Michael Porter. His definitive textbook, “Competitive Advantage,” looks at what he calls the “generic strategies” of competition, breaking the idea into two factors: competitive scope and competitive advantage.

Porter says that a brand’s competitive scope is either narrowly targeted or broadly targeted, while its competitive advantage is either cost-based or differentiation-based.

After researching hundreds of businesses and sorting their competitive differentiation according to the above criteria, Porter found three ways that brands can define their competitive edge: cost leadership (aka, the no-frills approach), differentiation (a brand with uniquely desirable offerings), and focus (specialised offerings for niche markets). This last category, focus, Porter segments into cost focus and differentiation focus.

One of Porter’s most salient findings is that brands without a clearly articulated competitive strategy wind up forever “stuck in the middle.” Brands in this no-man’s land are unable to persuasively make a case for why customers should choose them over another brand.

Let’s take a closer look at each of Porter’s three “generic strategies”:

1. Cost Leadership

Brands whose competitive strategy centres on cost leadership provide reasonable value at a lower price. While the appeal of cost leadership brands to consumers is obvious, the businesses behind them are usually forced to find creative ways to relentlessly improve operational efficiency.

The takeaway here is that a brand whose advantage is communicated in terms of cost leadership must always be on the lookout for ways to maintain their edge in the market when it comes to pricing.

2. Differentiation

A brand whose competitive advantage strategy is centered on differentiation delivers a superior product or service than other brands in its competitive landscape.

“Superior” here might mean a higher quality product, a faster service, or more advanced technology. Apple, Nike, and Harley Davidson are all good examples of brands whose competitive advantages centre on differentiation.

Regardless of how they are differentiated, brands like these are able to charge a premium for their offerings. That’s because customers who gravitate toward effectively differentiated brands are less concerned about price and more concerned about the functional, emotional, or self-expressive brand benefits.

3. Focus

Finally, brands with focus-based competitive strategies target highly specific audiences with offerings that are uniquely specialised to meet their needs. These focused benefits can be geared around either cost or differentiation, the point is that they are highly specific to a unique customer base.

Brands like Glo, Chicken Republic, Startimes and Amazon have pursued strategies focused on cost effectiveness, while brands like Bentley, Rolex, and Gucci are heavily focused on differentiation.

Whether it is focused on cost or differentiation, a brand with a focus-based competitive advantage strategy must understand its target audience better than its competitors. These are niche offerings that appeal to niche demographics. For these brands, tools like customer research and regular brand audits are essential to maintaining their advantage.

Last line

The keys to any successful competitive strategy include clearly defined objectives, tactical planning, and, most importantly, the operational wherewithal to support them. Insofar as it undergirds your brand promise, it’s essential that you’re able to execute on whichever competitive strategy you decide is best.