Knowledge
Competitive advantage: how to gain and keep it
Competitive advantage on the market is a topic we raised during another meeting of entrepreneurs. The simplest example of it is gaining a monopoly. Fortunately, firstly, antitrust regulations protect the market, and secondly, contrary to appearances, monopolists create a considerable space for imitators competing with them on price or quality. There is no single solution that ensures a company’s competitive advantage.
Building competitive advantage.
During the discussion, the most important elements of building competitive advantage were considered to be people, the brand and the business modelthe company has. In small and medium-sized enterprises the team, its quality, plays a fundamental role.
In creative industries, the creative and sales productivity of teams of equal size can differ by an order of magnitude. The selection of colleagues, communication within the company and continuous care for the quality of employees and the product are elements that build competitive advantage. The brand plays a very important role; once a good reputation on the market has been earned, the brand becomes an element stabilizing the advantage.
Of course, advantage does not come from nothing; it is built by the company’s team of employees, within a consciously chosen business model. In every company weaker months or quarters can happen. If you have managed to build a good brand, it allows you to get through a crisis more gently, and the advantage gained pays off and provides a safety cushion.
Does gaining competitive advantage give lasting effects?
Importantly, competitive advantage is not given once and for all, or even for a year or longer. Maintaining it can be achieved rationally, by balancing the quality and price of the product or service. It should be remembered that gaining an advantage is a moment of success, but lasting success can only be ensured by maintaining it in some area.
One example given was a market in which contracts with clients are customarily concluded on a subscription basis for a fixed term, generally ranging from a few months to over a year. The company that was the first to decide to let clients conclude contracts that could be terminated at any time thereby gained a competitive advantage, at the cost of greater uncertainty about future cash flows from the client. In this way it gained greater ease in acquiring clients, most of whom, as it turns out, use good-quality services anyway over a time horizon similar to that before such an option was introduced. This example shows another aspect of maintaining competitive advantage: often you have to sacrifice something to gain more. One can say that flexibility of management and continuous monitoring of business models are another factor that makes it possible to achieve an advantage.
What is a competitive advantage today may be the standard tomorrow
Another example of the variability of competitive advantage over time is the use of products in the form of technical management support tools. The example of ERP systems shows that an element of a company’s business infrastructure can give a competitive advantage to the company using it, as long as not all competitors use it yet. The organizations that were the first to implement ERP systems gained a significant advantage flowing from better management of the organization’s resources.
Over time, once most companies had such systems, having an ERP became merely a condition of competitive parity. Implementing the system was generally associated with organizing the company’s operations and processes, which was an additional competitively beneficial element. The other side of the coin is that such systems petrify the state of the organization, so that an advantage can be gained by companies that react more flexibly to market challenges and fight differently for competitive advantage and clients. On the margins of these considerations it is worth noting that the so-called siloed or cascade approach to management is gradually being displaced by the process approach.
When does the lowest price on the market allow you to build an advantage?
In the conditions of the Polish market, an important factor of competitive advantage is price. As research shows, Poles prefer to buy cheaper. This is particularly visible in the B2C market when dealing with products with the same parameters. When, however, we move to the B2B market, it turns out that the price to be paid for a product is the main parameter only in a situation where the client lacks knowledge. It becomes the determinant because it is the easiest to compare.
Once the client has been educated, the price of the offer becomes less important, because most of us rationally do not want to buy the cheapest or the most expensive products, but the product that has the optimal quality-to-price ratio. The ability to educate the market and clients, preferably in a process-based way, can be an important element of competitive advantage. So we see that competitive advantage is a dynamic phenomenon, variable over time and across market sectors, and maintaining it requires constant attention and care.
Competitive advantage and showing competitors in a bad light
Finally, the “other side of the coin” was discussed, i.e. so-called unfair competition. From a legal point of view the matter is obvious; the Polish Act of 16 April 1993 on combating unfair competition regulates matters clearly and precisely.
However, the question arose whether building your brand by disparaging competing brands does not constitute unfair competition. Those gathered leaned towards the opinion that it rather does. The thread of differentiating unfair competition from unethical competition, which we deal with much more often, also appeared.
Competitive advantage: summary
Let us remember that an advantage of products or services means the client’s trust in the company, and it is not enough just to achieve it; one must always think about quality and take care of the value behind our company, so that the advantage turns out to be lasting.
A company’s advantage is the effect of a strategy thanks to which we can outdistance the actions taken by competitors. The only thing they will be able to copy is our tactical actions; they will not see the broader vision. As long as clients receive what is important to them, the success of the company and the position of its products against the industry will be the advantage of the business.
