How to Explore Sources of Competitive Advantage
Competition is a force that has driven humans to outpace their competitors.
From the Ancient Olympics to playground games and professional sports such as golf and auto racing, the drive to win has pushed humans to be better and is a big reason we’ve progressed as a species.
Competition in business, like in life, is inevitable. It can be uncomfortable and scary to watch another business profit from your company’s weaknesses.
Yet business competition can also push your company to evolve into a better version of itself.
How do you gain an advantage for your business to fuel growth? Here are five sources of competitive advantage to leverage.
Sources of Competitive Advantage
1. Product Differentiation
One way to stand out from the crowd is to differentiate your product from the others. Ask yourself:
- What makes my brand unique?
- Why should consumers choose my product over my competitors?
- Your product has a lot of competition. What can you do to make it stand out?
Here are several ways to make your offering stand out from the crowd:
- Better customer service
- More variety
- Faster shipping options
- A physical store
- Colour and aesthetic choices
- A recognizable brand
- Where your products originate
Whole Foods is a grocery retailer that has a unique focus on high-quality natural and organic foods.
Its brand identity is built around its integrity of food sourcing, and they emphasize building a community feel in its stores.
Whole Foods is the first and only certified organic national grocery store in the United States, and it makes shopping for groceries a fun and easy experience.
Like Whole Foods, please select one or two attributes that set you apart from your business competition, and focus on them.
2. Willingness to Pay
Pricing is a vital part of running a business. To be successful, you have to understand the willingness to pay.
Willingness to pay (WTP) is the highest amount a customer is ready to pay for a product or service. It can be a particular dollar amount or a price range.
When it comes to your customers’ willingness to pay, you can use that knowledge to ensure you’re making a profit.
Business competition is not only about prices or quality. It’s about understanding the mind of the customer and what they are willing to pay.
In the context of business competition, understanding your customers will help you shift their wants and needs to ensure they pay more for your product.
To gain a competitive advantage, you can create changes that give your business the upper hand.
For example, if you know that a competitor’s prices are too high, you can offer a lower price, but be careful because the lower price could be the very top of their willingness to pay.
This is something to contemplate when making decisions for your business.
3. Price segmentation
By understanding your customers’ willingness to pay differing levels, you can offer different prices for the same product.
For example, if one customer is willing to pay more than another, you can offer the product at a higher price to the former group.
This is called price discrimination. It can be a valuable tool for increasing your market reach, especially when competing with other companies that offer the same product.
For example, if you’re selling digital courses, you can charge students less than veterans.
These “special case” prices are an excellent opportunity to get new customers who might be more willing to buy than your typical customers.
It’s important to note that a lower price isn’t always what’s in consumers’ best interest in making a purchase. They’re looking for the best product, and lower prices aren’t the only factor they consider.
4. Bundled Pricing
Bundle pricing is when you sell more than one item together for a lower price than if they were sold separately. This is a powerful competitive business strategy to implement online.
Selling two products for one price is attractive to customers, especially when they have to do minimal comparison shopping.
Cable companies offer bundled packages. Customers who purchase bundled packages of voice, video, and internet services generally pay less than they would if they were to buy them separately.
You may be able to increase the price of a bundle of two products if it helps consumers see the value in them.
If you put two products together that usually are purchased together, your consumers may see the package as more valuable and be willing to pay a higher price.
5. Human Capital
A company’s strength lies in its people. That’s why hiring, training, and retaining a skilled team is a competitive advantage for any business.
Hiring well is important. It can be challenging to find the right person for the job, but it’s worth the time and effort.
Once someone is onboard, train and develop them to fit your culture. Creating opportunities for growth and support will help keep your employees happy and motivated.
According to Gallup, businesses with highly engaged employees see a 21 percent profit increase.
As the COVID-19 pandemic rages on, many businesses have been forced to close their brick-and-mortar locations and shift to remote workers.
Finding new ways to engage employees in a virtual setting can help you make them feel supported and empowered despite being far from the office.
To rise to the top of your market, you should differentiate yourself from your competitors. This could be accomplished through pricing your products differently, creating a unique product, or investing in your employees.
When you take a strategy course, you can become a more assertive business owner.
You can use real-world examples to strengthen your business skills in these three areas: competition, resources, and competitive business strategy.
You can view your business competition as a catalyst for growth instead of a looming threat.