How to Determine Your Competitive Edge
Competition is the driving force in many businesses. It may involve price, quality, special features or service, time or other factors. To develop effective strategies for business, it is essential for business owners to determine what combinations of factors are important to customers, which factors are order qualifiers (perceived minimum standards for acceptability to be considered for purchase), and which are order winners (perceived to be better than the competition).
Businesses must be competitive to sell their goods and services in the marketplace. Competitiveness is how effectively an organization meets the wants and needs of customers relative to others that offer similar goods or services. It is an important factor in determining whether a business prospers, barely gets by, or fails. Businesses compete through some combination of price, delivery time, and product or service differentiation.
Marketing Efforts Influence Competitiveness
A businesses marketing efforts influence competitiveness in several ways, including:
- Identifying consumer wants and/or needs - a basic input in business owners’ decision-making process, and central to competitiveness. The ideal is to achieve a perfect match between those wants and needs and the goods and services offered by the business.
- Price and quality – key factors in consumer buying decisions. It is important to understand the trade-off decision consumers make between price and quality.
- Advertising and promotion – ways business owners can inform potential customers about features of their products or services and attract buyers.
Operational Influences on Competitiveness
Business operations have a major influence on competitiveness in several ways:
- Product and service design – should reflect joint efforts of many areas within the business to achieve a match between financial resources, operational capabilities, supply chain capabilities, and consumer wants and needs. Special characteristics or features of a product or service can be a key factor in consumer buying decisions. Other key factors include innovation and time-to-market for new products and services.
- Cost – of a business’ output is a key variable that affects pricing decisions and profits. Cost-reduction efforts are generally ongoing in many businesses. Productivity is an important determinant of cost. Companies with higher productivity rates than their competitors have a cost advantage. A business owner may outsource a portion of its operation to achieve lower costs, higher productivity, or better quality.
- Location – can be important in terms of cost and convenience for customers. Location near inputs (like, capital, labor, raw materials, and equipment) can result in lower input costs and quicker delivery times. Convenient location is particularly important to retailers.
- Quality – refers to materials, workmanship, design, and service. Consumers judge quality in terms of how well they think a product or service will satisfy its intended purpose. Customers are generally willing to pay more for a product or service if they perceive the product or service has a higher quality than that of a competitor.
- Quick response – can be a competitive advantage. One way is quickly bringing new or improved products or services to the market. Another is being able to quickly deliver existing products and services to a customer after they are ordered, and still another is quickly handling customer complaints.
- Flexibility – is the ability to respond to changes. Changes might relate to alterations in design features of a product or service, or to the volume demanded by customers, or the mix of products or services offered by a business. High flexibility can be a competitive advantage in a changeable environment.
- Inventory management – can be a competitive advantage by effectively matching supplies of goods with demand.
- Supply change management – involves coordinating internal and external operations (buyers and suppliers) to achieve timely and cost-effective delivery of goods throughout the system.
- Service – might involve after-sale activities customers perceive as value-added, such as delivery, setup, warranty work, and technical support. Or it might involve extra attention while work is in progress, such as courtesy, keeping customer informed, and attention to details. Service quality can be a key differentiator; and it is one that is often sustainable. Moreover, businesses rated highly by their customers for service quality tend to be more profitable, and grow faster, than businesses that are not rated highly.
- Managers and workers – are the people at the heart and soul of a business, and if they are competent and motivated, they can provide a distinct competitive edge by their skills and the ideas they create. One often overlooked skill is answering the telephone. How complaint calls or requests for information are handled can be a positive or a negative. If a person answering is rude or not helpful, that can produce a negative image. Conversely, if calls are handled promptly and cheerfully, that can produce a positive image and, potentially, a competitive advantage.
Why Some Businesses Fail
Businesses fail, or perform poorly, for a variety of reasons. Being aware of those reasons can help business owners avoid making similar mistakes. Among the main reasons are the following:
- Neglecting operations strategy.
- Failing to take advantage of strengths and opportunities, and/or failing to recognize competitive threats.
- Putting too much emphasis on short-term financial performance at the expense of research and development.
- Placing too much emphasis on product and service design and not enough on process design and improvement.
- Neglecting investments in capital and human resources.
- Failing to establish good internal communications and cooperation among different functional areas.
- Failing to consider customer wants and needs.
The key to successfully competing is to determine what customers want and then directing efforts toward meeting (or even exceeding) customer expectations. Two basic issues must be addressed. First: What do the customers want? (Which items on the preceding list of ways businesses compete are important to customers?) Second: What is the best way to satisfy those wants?
A businesses operational and marketing efforts must work together to obtain information on the relative importance of the various items to each major customer or target market. Understanding competitive issues can help business owners develop successful strategies.
You can use the Live Plan Lean Planning process to evaluate your competitive landscape and to help you focus on the necessary business information needed to build your financial roadmap. Click here to learn more about how we use Live Plan and the Lean Planning process.
If you’d like help creating your Lean Business Plan … we can help. We specialize in helping businesses create comprehensive financial plans, monitor their financial activity and understand their financial statements. So, if you don’t have the expertise or resources, click here to contact us.