The man who comes up with a means for doing or producing almost anything better, faster or more economically has his future and his fortune at his fingertips.
—J. PAUL GETTY
The most important single determinant of success is your area of competitive advantage. It is more important than all other factors. It determines the rise or fall of your business, your level of profitability, your position in the marketplace, and everything else you accomplish.
Your competitive advantage must be crystal clear to you and to everyone in your company, as well as to your prospective customers. Lack of clear competitive advantage leads quickly to diminished sales, loss of market share, lower profitability, price-cutting, and, ultimately, business failure.
Your business was started because you or your company had an idea for a product or service that was different from or better than other products and services. Your company offered to satisfy the same need or to solve the same problem better, faster, or more cheaply than anyone or anything else then available.
Your ability to differentiate your product in the minds and hearts of your customers is the key to winning them in the first place and keeping them after the initial sale. To buy from you, a customer must be convinced that, all things considered, your offering is different from and better than anything else that is currently available at the same price. Jack Welch was famous for saying, “If you don’t have competitive advantage, don’t compete!”
Low price does not give you a competitive advantage all by itself. A product that sells solely on the basis of price is called a commodity. In the eyes of the customer, it is identical to any other product or service offered by any other company. The only way that a commodity can be differentiated is on the basis of price. Whenever a product becomes commoditized in the marketplace, it becomes almost impossible to charge enough for it to make a worthwhile profit.
Fortunately, what you sell is special. It is not a commodity. It is different in many ways from anything else available, if only because the people who make and sell it are different.
However, whenever the key people in a company, or the salespeople for that company, are unclear about why and how their product or service is different from and better than competitive products, they resort to price-cutting to get the business. There is no future in that direction.
The critical role of marketing is to differentiate your product or service from those of your competitors. Any marketing, advertising, or selling that does not emphasize the valuable differences contained in your product as compared with that of your competitors is a waste of time and money.
All differentiation revolves around the creation of a clear, competitive advantage of some kind. This is the central focus of all strategic thinking with regard to marketing.
To succeed in a tough market, what you sell must be superior to your competitors’ offerings in at least three ways. It must be better, faster, cheaper, and easier to use in some way that makes it more attractive than rival products or services. It must be sold more professionally or serviced with greater sensitivity, speed, or efficiency. It must be better in at least three areas.
One of your key jobs in strategic thinking is to identify the three areas in which you are better and then to emphasize those areas of superiority in all of your marketing and sales work.
In The Discipline of Market Leaders Michael Treacy and Fred Wiersma identified three areas where market leaders are superior to their competitors. They concluded that each business, to achieve market dominance, must be excellent in at least one of these areas and reasonably good in the other two.
The first discipline they identified is operational excellence. A company with this competitive advantage is able to run its business so efficiently and well that it can produce and sell its products and services at lower prices than its competitors. The company can then pass on the cost savings to its customers in the form of lower prices or keep the savings in the form of higher profits—or both.
Companies like McDonald’s and Wal-Mart, for example, are operationally excellent. Each has been able to achieve such economies of scale via mass production (McDonald’s) or superior distribution systems (Wal-Mart) that they dominate their markets.
How could you achieve operational excellence in your business, or some part of your business, in such a way that you could be the low-cost provider in your market? How could you dramatically reduce your costs of doing business and use this low-cost advantage to increase your sales and profitability?
The second area where you could achieve competitive advantage is in the use of innovative technology leading to the production of high-quality products and services. Companies like Mercedes and Rolex fall into this category, as do Sony and Lexus.
Customers are willing to pay a premium for a brand name that represents high quality and cutting-edge technology. Where are there opportunities for you to distinguish your products or services by using your imagination to become the quality leader in your field?
The third area where you could develop competitive advantage is in being “close to the customer.” This requires that you invest the time to develop high-quality relationships based on “customer intimacy.” Customers will pay more and remain loyal longer to companies that seem to know and understand them better than others. Providers of specialized services, such as consulting firms, law firms, and accounting firms fall into this category.
In what ways could you develop higher levels of trust and credibility with your customers? What could you do to demonstrate to your customers that you really care about them and their interests? This strategy can offer a breakthrough opportunity, especially in the sale of expensive products and services where resales and referrals are possible.
To lead your field and achieve higher levels of profitability, you have to be outstanding in one of these three areas and very good in the other two. One of the most important decisions you make is to choose your area of competitive advantage and then dedicate your company to achieving it.
A competitive advantage has two qualities. First, it is something you offer that your competitors do not offer to the same degree. It is clear that you have an advantage in that area. Domino’s Pizza developed a competitive advantage based on speed of home delivery that no competitor was able to match. With that advantage, Domino’s went on to build 7,000 outlets, making its founder, Tom Monahan, a billionaire in the process.
Second, a competitive advantage is something that customers recognize, appreciate, and are willing to pay a premium to enjoy. In every case, it is the customer who decides if your competitive advantage is important to him or her. The customer will tell you if your offering is superior to that of your competitors in some way by buying your products or services in sufficient quantity to enable you to profit and grow.
A product or service that is “better” is a product that does what the customer purchases it to do in a way that is superior to the product of any competitor. Apply this to your company. In the view of your customers, are your products and services “better” than anything else that is available to them?
The quality of being “faster” means that your product or service satisfies the “need for speed.” It achieves the result or benefit promised by your product faster than your competitor does. It is sold, serviced, or delivered faster. Domino’s Pizza built its success around its reputation for speedy delivery.
If your product is “cheaper,” it means that you offer the same value at a lower cost. You may offer better terms, or even greater value, at the same cost. Perhaps you offer superior service included in the same price that your competitors charge. Perhaps you offer additional benefits that make your product or service appear cheaper than that of your competitor. As a result, your customer feels that he or she would be better off buying from you rather than from someone else.
If your product is “easier,” this means that your customer can acquire or use it with greater convenience. The customer gets the results and benefits you offer with less effort. Perhaps the customer experience is smoother and more enjoyable as well. In buying from you, there are “no hassles.” The customer perceives this as a value that is worth paying for.
Your area of excellence is the key to your success in a competitive marketplace. This is where your product or service stands out in comparison to that of your competitors. It is a value or benefit that you offer that no one else offers. With regard to your products or services, what is your area of excellence? What could it be? What should it be?
Your area of superiority is defined as an area of performance where your product or service is superior to that of your competitors. This performance difference is significant enough that your customer will buy it and even pay you more for it. In what way does your product perform better, in terms of getting results that your customer cares about, than that of your competitors? How could you improve the performance of your products or services in some meaningful way?
You can be excellent without being superior. You can be superior—as in the areas of speed or cost—without being excellent.
Finally, your unique selling proposition is something that you and only you offer to your customers, and it is something that they really care about. No one else does as well as you do in this area. No one else achieves the same benefit or result. What is your unique selling proposition? What could it be?
Every product or service, in order to survive in a competitive market, must have an area of excellence, an area of superiority, and a unique selling proposition. The development and maintenance of these competitive advantages is the primary job of management.
You should always be prepared to answer the customer’s primary question: “Give me one reason why I should buy from you rather than from someone else.”
Whatever your answer is to that question, you should build all your marketing and sales efforts around it. Your answer is the key to business success.
On a personal level, you must continually ask these questions of yourself. What is your personal area of excellence? Where are you superior to your competitors? What is your unique selling proposition? In what ways do you do your job better or faster than others? What is it that you and only you do in an outstanding fashion for your company? What could it be? What should it be?
Perhaps the most important area of superiority you can develop is your ability to do your job quickly and well, in an excellent fashion, consistently and dependably every time. This is the key to success as an individual in a competitive marketplace.