How To Create Competitive Advantage in Business

Last updated on 23 May, 2018 | 1 comment

competitive advantage

With the introduction of Laissez Faire economy and massive globalisation the, level of competition among the market players has reached mountain height. Companies are engaged in fierce competition and are not shying off to adopt unconventional and unethical tactics to increase their market share.

It’s a very common phenomenon in current economic scenarios and at the end of the day, some companies come out with flying colours, while some struggle to survive.To edge past its competitors, a company needs to analyse them with great minuteness and find the routes and rooms to score over. Competitor analysis starts with identifying competitors, then to assess them and finally to select which competitors to attack and whom to avoid.

Step 1: Identifying Competitors

Though it seems to be a simple task, practically things are quite different. At the narrowest level, competitors can be defined as those who are offering similar products or services to the same customers at similar prices. However, Companies actually face a much wider range of competitors. Companies can identify their competitors in two ways- from the industry point of view and from the market point of view.

From the industry point of view, a company sees its competitors in the industry like PepsiCo competes with Coca-Cola in beverage industry; Samsung competes with Apple in the smartphone industry and so on. A company must understand and analyse the competitive patterns of the industry if it wants to be an effective player in that industry.

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On the other hand, from the market point of view, a company will find its competition with other companies who are satisfying same customer needs with different products. For example, PepsiCo’s ‘Thirst quenching’ soft drinks get competition also from Red Bull energy drinks, Bisleri mineral waters etc. Companies usually see the industry competition very closely ignoring the threat from a broader marketplace, which is far more dangerous than the former one. A good example of this type of competition is Kodak. It overlooked the threat from digital photography segment and as a result, it went out of competition with its obsolete film rolls.

Step 2: Assessing Competitors

Identifying competitors is not enough. One has to understand their objectives, their aspirations, their strategy, their strength and weaknesses etc. In short understanding the competitors overall game plans. Things to do-

a) Determining competitors’ objectives:

Each competitor has a mix of objectives. Knowing competitors’ mix of objectives reveals whether the competitor is satisfied with its current situation and how it might react to the different competitive action. A company should also monitor its competitors’ objectives for various segments to grab market opportunities.

b) Identifying competitors’ strategies:

An industry runs with different strategic groups. A strategic group is a group of firms in an industry following the same or similar strategy in a given target market. The company needs to look at all the dimensions that identify strategic groups within the industry. It must understand how each competitor delivers value to its customers along with product’s quality, features customer services, pricing policy, advertising and marketing, sales force strategy etc. The company must also study the details of each competitor’s research and development, manufacturing, purchasing, financial and other strategies.

c) Assessing competitors’ strengths and weaknesses:

This is important to understand what competitors can do? Though it is not that easy to detect- yet studying the secondary data, personal experience and word of mouth can give an overview of the competitors’ strengths and weaknesses. Benchmarking is an effective tool to understand where the company is lacking and where they are leading than its competitors.

d) Estimating competitors’ reactions to Company’s policy implementation:

With proper evaluation of strengths and weaknesses of the competitors’, a company comprehends their reaction to any proposed action or inaction. Each competitor reacts differently. Some are obsessed with customer loyalty and reacts lately or ignore. But some react vigorously all at once. This art of estimating competitors’ reactions keep the company well ahead in the industry.

Step 3: Selecting Competitors to Attack and Avoid

The final thing in competitor analysis ends up with selecting competitors to attack or avoid. There is no blanket rule to select companies whether to go aggressive or ignore for competition. And it largely depends on target customer, positioning and marketing strategy mix. Attack and avoid decision depends on following competitors’ positions:

1. Strong or weak competitors:

Most companies prefer to compete against weak competitors as it requires fewer resources and lesser time in comparison to the stronger one. But in the process companies gain little in comparison to bigger competitors. On the other hand, though gains are bigger, Competitions with strong competitors involve bigger investment both in terms of money and men and bears greater amount of risk.

Choosing an effective set of competitors can be critical to the ongoing viability and success of the firm. Click To Tweet

Strength and weakness of competitors can be analysed from the benefits that the target customer value and how the customers rate the relative value of various competitors’ offer. The key to gaining competitive advantage is to examine how a company’s offer compares to that of major competitors and how customers value that.

2. Close or distant competitors:

Companies tend to compete with close competitors who resemble them most. Like Dominos’ competing with Mc Donald’s as they are serving a particular range of customers and has a direct impact on their behavioural aspects. On the other hand, Dominos’ pizza will not compete with Red Lobster as they are distant competitors. It is obvious that competing with close competitors naturally creates extra space to roll on, but one to be cautious that such vacuum may attract other distant but major competitors to enter the particular segment of the market.

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3. Good or bad competitors:

Why a business needs competitors? Having competitors in the market create some activity within the market keep the companies busy in developing plans of action. Sometimes competition results in several strategic benefits. Competitors may help in developing a market, at the same time share the cost of market. Product differentiation in a competitive market has strong chances of growing the total demand for the product.

But in a price war situation with the competitors, the company may have to face severe financial losses causing ouster from the market. An industry contains both good and bad competitors. Good competitors play by the rules of the industry, but in contrast, bad competitors break the rules. So, it’s very important to understand what is good and what is bad competition.

Conclusion

The Companies may also find ways by going alone in a non-competitive market. And one of the very good strategy for a company to go competition less by finding out unoccupied positions in an uncontested marketplace. Companies often do this by creating products and services for which there is no head to head competition.

To win in today’s marketplace, the companies must become adept not only in managing products but also in managing customer relationships in the face of determined competition and a difficult economic environment. Building profitable customer relationships and gaining competitive advantage requires delivering more value and satisfaction to target customers than competitors do.