There’s a reason that starting a business isn’t for everyone: entrepreneurship can be rewarding in more ways than one, but it’s also challenging. More often than not, you will face plenty of competition from other businesses offering similar products or services.
Consumers are also savvier than ever, and they can easily search online to find out about your competitors’ offerings, pricing, and a host of other factors that will impact their buying decisions. All of this means that it’s increasingly important for businesses to develop a competitive advantage that sets them apart from others in their industry.
What is competitive advantage?
A competitive advantage, simply put, is an attribute that gives your business an advantage over its competitors. There are many different aspects of a business that can make up a competitive advantage, and we’ll look at a few examples in this article.
A competitive advantage doesn’t necessarily have to make your business more competitive in the eyes of all consumers, only in the eyes of the specific target market segments your business is competing for. This means that in each industry, many businesses can have competitive advantages over each other, it just depends on which advantages a consumer prioritizes when making a buying decision.
Examples of competitive advantage
Some commonly cited types of competitive advantage for product-based businesses are lower cost of materials through economies of scale, lower shipping costs, access to unique raw materials, favorable geographic location, unique technology, and high barriers to entry for new competitors.
These are all things that can give a product-based business a comparative advantage over other businesses, enabling them to offer a more high-quality product, a cost advantage, or better service.
Competitive advantage for service-based businesses can include specialized knowledge and experience, unparalleled customer service, or valuable industry experience.
Six ways to develop your competitive advantage
You might think that as a new entrepreneur, your small business can’t possibly develop a competitive advantage over more established businesses that have more resources than you. However, there are always ways to develop a differentiation strategy for your business. Sometimes, being smaller and more nimble can give you an advantage over competitors.
1. Become an online influencer
Becoming an influencer for your target audience is a great way to differentiate your business in the market. While someone can always come along who offers your product or service at a cheaper price, if your target market sees you as a trustworthy source of information and enjoys your content, they are more likely to buy from you, anyway.
For example, if you are a professional organizer, you may have to charge a little more as a sole proprietor than a larger company that pays its organizers by the hour. However, if you can build an audience on social media sharing all your best organizational tips and posting inspiring before and after photos, your potential customers will see you as an authority and be more likely to want to work with you and support you despite a premium price.
2. Speak at events in your industry
Similar to becoming an online influencer, speaking at industry events can help establish you as a thought-leader in your industry, giving you a competitive edge. If your target audience is very local, becoming more visible at local events can be an excellent way to get your name out there and land new business.
3. Niche down
As an entrepreneur, you can’t make everybody happy 100 per cent of the time. An effective business strategy you can implement to serve your customers and grow your customer base is to define your niche as narrowly as possible and become known for being the best in your narrow niche.
For example, if you have a food truck business, there will always be other food trucks to compete with. However, by getting good at one unique specialty signature menu item, you’ll likely become the go-to place for that item.
4. Charge more
The lowest-cost producers in a given category may have selling price as their differentiation advantage, but sometimes a higher cost can signal that product quality, sustainability, or service are a business’s advantage.
Finding the absolute lowest price isn’t the only thing that’s important to consumers. For example, many people prefer to support their local independent coffee shop even if they can get their morning coffee for less at a nearby chain. The chain may have access to cheap labour and lower cost coffee beans. However, a local shop can source artisanal, fair trade, and sustainably grown beans and boast a living wage for their employees.
The higher costs at the independent coffee shop signals higher quality and more ethical practices, which represent competitive advantages in the eyes of a particular target market.
5. Invest in deeper customer relationships
Another competitive advantage that is more likely to be accessible to a smaller business than to large competitors is the ability to form meaningful, deep customer relationships.
If you want strong customer relationships to be your competitive advantage, ensure that you take every opportunity to engage with your customers, be transparent with them, show your appreciation for their business, and personalize their experience.
We all like to feel appreciated, and when a business shows their gratitude to their customers and invests in offering exceptional customer service, customers will be more likely to remain loyal, even if a cheaper alternative comes along.
6. Create an amazing company culture
Building an amazing company culture can pay off in many ways. First, it’s among the key factors that employees look for when looking for a new job. If you want to hire the best talent in your industry but your company culture is tense, unpleasant, or doesn’t foster a cooperative and respectful work environment, the top talent won’t want to be there.
Second, as today’s consumers expect ever more transparency from the companies they support, being known for a great company culture can help draw even more customers to your brand. In a competitive landscape, this kind of differentiation can give your business the edge it needs.
As an entrepreneur, you have to wear many hats and keep your eye on many moving parts of the business, from sales and marketing to accounting and budgeting.
Developing an area in which you have a strong, well-defined competitive advantage can make your job as an entrepreneur a little easier by bringing in more loyal customers and providing you with a clear goal to keep in mind, maintaining your competitive advantage, as you make your business decisions.
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