Lecture 4. Competitive Advantage
Knowing what your enterprise can excel at in relation to competitors – and then building your business strategy around that focus – is probably the most important element of any successful strategic plan.

If you are competing in a market place by offering the same thing as many other rivals, then you can only compete on price: it’s a buyer’s market and prices will fall. This is the case for many creative businesses that do not succeed commercially. On the other hand, prices rise in a seller’s market, with a monopoly being the strongest position to achieve in relation to customers. A profitable strategy shifts your position from one of price competition towards a monopoly position. You can then raise your prices.

How do you do this? By focusing on a product or service that you can deliver and rivals cannot. Yes, for that product there is a smaller demand, but you are much more powerful in that particular market because there is even less supply. Our herd instinct is to follow others into bigger markets where there is more demand, but here there is also excess supply, so it’s a buyer’s market and prices fall.

Focusing on your unique strengths and NOT following the crowd is counter-intuitive but strategically intelligent. Your difference is your strength! Focus on how you are different and build your business around this strength. Not every potential customer will want this, but those who do will love you and pay the right price.

Here’s an example of Competitive Advantage, taken from my strategic marketing book ‘Chase One Rabbit: Strategic Marketing for Business Success. 63 Tips, Techniques and Tales for Creative Entrepreneurs’:

Felipe manages a small video production company in Bogotá, Colombia. When I asked him what his business excels at, he quickly said, ‘music videos’ and told me about the excellent videos they’d produced for rock bands. He told me they also make corporate videos and videos for community groups with subtitles used for speakers of foreign languages.

My next question was to ask Felipe what could they do well that rivals couldn’t. We soon recognised that hundreds of other companies also produce excellent music videos, so his company can’t dominate that market. However, very few rivals can produce community-based documentary videos with more than one language involved. In fact, it turned out they are one of the few best firms making multilingual documentaries. Although they excel at music videos, they don’t stand out from the crowd in this market. They do not excel in relation to the competition. Where they do excel in relation to rivals is in the multilingual documentary business. This is where they have competitive advantage.

At what can you excel? Or more precisely, at what can you excel in relation to competitors?

It makes perfect sense to focus on the areas in which you have competitive advantage – to do only those things at which you can excel in relation to competitors. In this way you are competing on your own terms, choosing your battles, and dealing with rivals from a position of strength.

This competitive advantage may be technical, for example, expertise in a particular business area that others do not have. On the other hand, competitive advantage may derive from infrastructure, systems, logistics, or economies of scale that cannot be replicated easily by rivals. For example, wide distribution networks, detailed information about sales trends, production capacity or rapid delivery can provide a competitive advantage over rivals for particular businesses.

Your competitive advantage may be also derived from social connections or status. It may be that you are well respected in a particular community, or have connections in all the right places in a certain industry, or can relate better than rivals to a particular group of customers because of cultural, language, or other affiliations. This is especially the case in businesses where personal relationships matter.

We cannot recognise where we have competitive advantage unless we analyse our competitors.

This is crucial because we need to base our marketing strategy on our competitive advantage. That’s to say, if we want to focus on the things we can do better than our rivals, we need to know what our rivals are good at, not so good at, and how we can outmanoeuvre them.

If you are one of many supplying the market with similar products, your only option is to drop your prices. On the other hand, if you stand out from the crowd you will be in demand, and able to increase prices. It’s all about supply and demand and the relationship between these two things.

A large market may seem attractive, but if there’s an even larger supply, then it’s a buyer’s market. On the other hand, a smaller market but with even fewer suppliers works to the advantage of suppliers. It’s better to be a big fish in a small pond than a small fish in a big pond: small fish get eaten by bigger fish, and businesses without a competitive advantage fail.

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