I have to give credit to my lecturer Dr Nawaz who always hammered the word “Competitive Advantage” in almost every lecture we had in my Information Systems Strategies course. Whatever he says or tries to teach us about how this “big boys” do business (by big boys I mean Apple, Tesco and the likes) , he always almost ended the statement with “They do this, or use this IT infrastructure inorder to gain – Competitive Advantage .
I’m sure in the minds of all the students in the class, these four words always comes to play “Here we go again!”. But as business minded hustler, I always knew that term makes sense and really, although we do not know it, but most of the things we do in our everyday lives is to gain a competitive advantage over others.
Remember that time you decided to buy that new suit from TM Lewin when you know it would cost 50% less if you had bought it from HnM or that time you bought that Victoria Secret under wear when you know the same pair of underwear will cost less from a less known brand.
All you wanted to do was to look better than the average person and maybe get people to look at you differently, mmmm! To be honest, all you really wanted was to have a “Competitive Advantage” over the average Tom,Harry or Sarah. Okay! Can we move to the business part of this? Well, am glad you asked!
So, how do we define Competitive Advantage? In plain language, “It means an advantage over a competitor that is achieved either by the price of your product, your turn around time, or the the value your product provides to the end user”.
“Competitive advantage is an advantage over a competitor that is achieved either by the price of your product, your turn around time, or the the value your product provides to the end user”
In all the ways that a business can gain competitive advantage over another, they all come down to these two words – “Differentiation” and “Cost”
Yes! Cost and Differentiation but they are also splitted into “Cost Leadership” “Cost Focus” | “Differentiation Leadership” & “Differentiation Focus”. Some businesses make use of both cost and differentiation to gain competitive advantage, continue reading as I will be explaining each of the segments and by the end of this post, you will have a firm understanding on which is best for your business and you can start implementing it right away.
Don’t let that biscuit eating main distract you, get started now!
Cost Leadership: This is a strategy whereby your business’s USP ( Unique Selling Point ) is the fact that you are the cheapest provider of your product or service. And you are sort after for not because of the quality of your product, but because of the price, if you provide a quality product as well, that is a plus on your side. It is important to stress the fact that to achieve this, you might have to make use of a LEAN methodology in your business process ( I will explain LEAN in another post ) – but just know that LEAN is basically an approach to increase the value provided to your customer by eliminating waste which in turn reduces cost for your customer.
And big businesses like McDonald’s, TkMaxx, Primark and other brand that you know that provides cheap products are able to do so by leverage Economies Of Scale ( which is the fact that they are big and are able to purchase in large quantity from the manufacturer.
They are able to get the products at very low cost and able to sell at a very low cost as well. I believe to achieve Cost Leadership, you need to have strong capital and strategic relationships with suppliers.
This is a strategy whereby your business’s USP ( Unique Selling Point ) is the fact that you are the cheapest provider of your product or service
Cost Focus: This is another interesting competitive strategy. Cost focus in simple terms is a scenario where a business selects a distinct niche of a market and tries to dominate the market with its price or basically gain a cost advantage over others. Two things come to play here – Focus on a niche and gaining of cost advantage in that niche.
As we already know, the market is very large and the amount of customers who want a distinct product or service is also large but not as large as the whole market. So, targeting those customers with your product /service and leveraging on the fact that they have unique preference and needs to place your business in a cost advantageous position is the basic principle of the Cost Focus strategy.
Focus on a niche and gaining of cost advantage in that niche
Differentiation Focus: This involves a business seeking a segment of the market and trying to dominate it by providing unique value. Customers tend to perceive the business as a force to reckon with in that niche. For example; in the clothing industry, there are so many types of clothes and styles, to adopt the differentiation leadership strategy would be to focus on creating and designing Kids Clothes, to even further differentiate your business – it would be to focus on Kids clothes for 0-2 years old. Get it?
The advantage of this strategy is the fact that there is less competition in that niche and it ‘may’ be easy to create a brand.
Customers tend to perceive the business as a force to reckon with in that niche.
Lets take a minute to talk about the big boys – You cannot place music, videos or photos from your computer to your Iphone out of the box without making use of Itunes but other phones allow you to send music with just the USB cable and a computer – Apple shines in the differentiation lane.
They create trends and make users have no choice than to love and learn to use the technology they introduce, they don’t follow trend, they differentiate their product / services from others. ( I know, its easy to do that when you are Apple right? – You got me! ) but even before Apple became an household name, differentiation has been introduced from the start.
Differentiation Leadership: Last but not the least, this approach involves positioning your business in a unique segment of the market and meeting unique needs and requirements from customers while charging a premium for that. Think about a Broker that provides financial advice to people with only £10,000,000 and more in assets/revenue or better still think about Patek Phillipe, they lead in the luxury watch market and they do not only provide ‘a luxury watch’ – they have been known to provide a watch that is passed down generations.
I saw a Patek Phillipe ad that made me laugh, it reads “Your never really own a Patek Phillipe. You merely look after for the next generation”. I believe quality has a great role to play in positioning your business or brand as a leader in the differentiated product segment.
The above points are just summary of ways to gain competitive advantage for your business as introduced by Micheal Porter. I tried as much as possible to stay away from complicated business terms that is used in the classroom and tried to bring it down to the level of the everyday hustler, business owner or aspiring entrepreneur.
We can leave the big terms for the students. What do you think? Was this post helpful to opening your mind to a strategy to follow to make your business / hustle more successful? Which one do you think you will be adopting? Also, feel free to shoot me an email if you need me to look at your business and advice you which is best to follow.
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