Understanding Your Competitive Advantage
As an entrepreneur your competitive advantage must be front and center in your mind. It sets you apart and is essential to your business success. To understand and define your competitive advantage you need to know three things: your business, your customers and your competition.
Through an in depth knowledge of your products and services, your customers’ needs, and the strengths and weaknesses of your competition you can identify what sets you apart – this is your competitive advantage. Knowing this can help even the smallest businesses find success.
The first step to understanding your competitive advantage is crafting a unique value proposition – essentially a summary of why a consumer should buy your products or services. This is what makes your business special, it’s why people would want to be your customer and what makes your business different from your competitors. Is your price, product, or customer experience an advantage?
Price: Businesses have three options when setting prices: set it below the competition, at the competition, or above the competition. While each has pros and cons, all will drive sales activity.
- Higher prices require the business to justify the premium. Is your product higher quality? Does it offer extra features? What cachet or prestige can it offer the customer?
- Below market pricing can be beneficial if the business believes customers will purchase additional products. Here, the profitability of the other products should subsidize any losses incurred on the below-market priced product. This is also known as a loss leader strategy.
- Charging the same price as the competition is also an option if the business owner believes they can differentiate itself through marketing or through other products and services.
Price ties into customer experience – and sets the expectations consumers demand from a brand. Some larger businesses, like Walmart, have the capacity to compete in ways that small businesses do not, so it’s important to find a pricing niche that works for you and your business.
Product: Pricing advantages can easily disappear with the introduction of a new competitor or new technology. To be successful, businesses must offer something to the consumer besides just a low price. If a product has a valuable or unique offering consumers are more likely to be brand loyal. Think about what you plan to provide. Does your product or service provide a solution to an actual problem? Are you offering a unique product or service that doesn’t exist in the market? Are you delivering services in a unique way?
Customer Experience: Just because you’re a small business owner, it doesn’t mean larger companies have an inherent advantage over you. Your small business could be a leading accessible or approachable experience. Invest in your customer experience by hiring the right people and creating a brand and atmosphere that people enjoy.
Your competitive advantage revolves around knowing your ideal customers. Researching your target market is so important because you must know who is willing to purchase from you. Do not rush this process! More times than not, business owners want to jump right into selling products or services, but you need to embrace the process and identify who your target market is. Don’t let your ambition trip up your business just as you’re getting out of the gate.
Not knowing your customers creates higher risk within your business, it leaves more to chance, and reduces predictability in your sales cycles. Your marketing efforts will also be more difficult as you don’t know who to target or why they are buying your product or service.
Since knowing your customer is the starting point, start by asking yourself these questions:
- What problem does your customer have?
- What do the customers want to buy?
- What are their ages?
- What are their genders?
- What’s their income?
- Where do they work?
- Where do they live?
- What does their lifestyle look like?
- What price would they be willing to pay?
By answering those questions, you create a buyer persona – a semi-fictional representation of your ideal customer based on market research. Buyer personas provide tremendous structure and insight for your business. A detailed buyer persona will help you determine where to focus your time and will guide product development. You can then create a more effective message and strategy to reach those consumers and adjust your products or brand accordingly. Once you understand who will buy from you, you have the backbone of your business.
Another great way to learn about your customers is by looking at the customers of your competition. Follow them on social media, engage with them, find out how much they’re willing to pay on similar products. You will never have competitive advantage if you don’t know what they will pay, and you won’t know what they will pay if you don’t talk to them.
Unfortunately, as a business owner you can’t just focus on yourself. You are not only worried about the operations and success of your own business, but also what your competition is doing. See if you can identify three to five competitors and figure out what’s working for them- what they’re doing right. If you can find out their “why”, “what”, and “how”, you can begin to understand your competition.
Why: Why do people use their products? Is it because people trust them? Is it because they have a low price?
What: What are they doing to provide a solution to the problem? What makes their products special or in demand?
How: How are they reaching customers?
Don’t forget to truly understand your competition, you can’t be afraid to walk in their office or store. Purchase the items, try them out, and talk to them. You can also analyze their online presence via google and social media.
Just because they may be your competition though, that does not mean you have to compete with them. By understanding your competitive landscape and who you are competing against, you can find ways to collaborate. You need to get in the habit of asking who the customer is, what they need, and finding a way to bring them value even if it’s not yourself. Even if you can’t provide a solution to what the customer needs, you’re still building relationships within the space by collaborating. Generating relationships with not only your customers, but your competition as well, will create a healthy environment.
After thorough research of your business, customers and competition, you will have more insight into the advantages your business may or may not have. But don’t stop there- there are many tools and resources that can provide you with the help to continue your entrepreneurship journey. Pathway WBC hosts a 7-week Embark Cohort that helps clients through market research, projections and strategies.