What makes your business unique also gives it a competitive advantage, regardless of your industry niche. Take a look at the biggies, like Walmart. This enormously successful discount retailer built its empire on low prices without regard for product quality, customer service, or even living wages for rank-and-file employees. Catering to a buying public trained to seek the lowest cost option, the strategy proved wildly successful and drove many small businesses out of business because they couldn’t compete with the cutthroat business practice.
Instructor Jennifer Lombardo’s class on competitive advantage with Study.com, which offers online business courses, states that competitive advantage comes in three basic varieties: cost, product/service differentiation, and niche strategies. Companies enjoy cost advantages when they control and reduce costs, thus enabling them to offer their products and/or services for a lower price than their competitors. Product or service differentiation arises when a company offers its market that its customers perceive as unique and deserving of their loyalty. Customer loyalty often hinges on perceptions of esteem, which wax and wane with the rise and ebb of popularity. Coca-Cola and Pepsi-Co leverage that strategy with their branded soft drinks: you’ll seldom find a Coke aficionado who willingly chooses Pepsi over his preferred beverage. Niche strategy as a competitive advantage basically means the company offers something not already available in the market. The company then demonstrates the value of the new product or service, thus creating and building demand.
The beauty and the bane of these three garden varieties of market success is that other companies soon see the brilliance of the strategy and hop on the bandwagon. They often improve on what the innovator did, which can then shove that first company out of the market unless it continues to innovate and improve.
Small businesses, such as consultant firms, must go beyond the garden variety strategy to capture enough market share to sustain operation. Some businesses can take advantage of geography. After all, the only theriogenologist in a rural county probably won’t have much competition from other veterinarians who don’t have the exalted certification. A home remodeling contractor must prove his value within a limited geographic area, unless he rises to celebrity status like the Silva Brothers of This Old House or Mike Holmes of Holmes on Homes.
On the other hand, some service-based businesses don’t depend upon geography. That, of course, confers both benefits and challenges. That business’ market grows exponentially, but so does its competition. That means the business owner (or entrepreneur, if you wish) must find something that distinguishes his or her business as unique, special, and eminently better qualified than any other business. Such distinctions may focus on certifications, awards, a famous clientele, or an extremely narrow niche that speaks to highly specialized knowledge.
Uniqueness often works in a young industry. Industry maturity results in a crowded playing field. According to Alexander Kandybin and Surbhee Gover writing for Strategy+ Business, “To succeed in a mature industry like consumer products, the trick isn’t being first — it’s being hard to copy.” When a mature business struggles to maintain or grow market share, marketing and advertising step in to identify what the market wants and then to build demand through the injection of new ideas generated to appeal to the customer base. Those ideas might be a new focus, new flavors, new features or technologies, or even a new line of products or services. Mature companies that rest upon marketing and advertisement usually see small, incremental improvements and changes rather than true innovation.
The concept of a competitive advantage, says Martin Zwilling in his article for Business Insider, “should be taken broadly to include alternative ways that people might solve the problem you are addressing.” Advantage, he says, “needs to be measurable and significant.” This requires a degree of abstraction that can be codified with a “How-Why” process such as used by value engineers. Once you complete the process and reach a viable definition, your business is on the way to capturing operational sustainability.