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Developing your competitive advantage print Print

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No business succeeds long term without some type of advantage over the nearest competitor. It is very important to show your customers how your product or service is different. This guide offers you some hints on how you can identify, develop and test your business’s competitive advantages.

A competitive advantage is something that you offer or have that the competitor does not. There must be some compelling reasons for people to do business with you rather than with other businesses. The need to identify your point of difference is even more important if (like most businesses) your business offers similar products or services to your competitors. The more similar your business is to many others, the greater your need to develop competitive advantages.


Identifying and developing your competitive advantage

How do you identify your competitive advantage? This question goes to the very core of your business. Your aim here is to determine what makes you different from other businesses.

A competitive advantage is what you are better at doing than anyone else, or in other words how you manage to stay in business against the competition. The smarter you can be about developing and promoting your competitive advantage, the better placed your business will be to succeed. There are three basic ways to establish a competitive advantage:

1. Cost leadership

This means that your advantage lies in being the cheapest (for example, discount warehouses, cheap clothing outlets or the large supermarkets).

2. Focus

This means servicing a particular market better than anyone else (a bakery for locals, a specialist business such as technical equipment repairs, etc).

3. Differentiation

This involves being different from the others. You might have the same product or service as others, but you make it different (for example, KFC has taken a common product, chicken, and differentiated it through recipes, branding and advertising).

Note that you can often have two strategies working together. Focus and Differentiation are the most common small business strategies because larger business can usually get bulk deals and compete on price. Being the cheapest is the easiest tactic to implement (just reduce all your prices), but this is really the last thing to compete on, as it is often a losing strategy. The chances that you can be the cheapest and survive are not good, because you will usually be competing against companies with far more financial muscle than you have.

Having the biggest margins is your ultimate goal. You can position yourself away from the cheap end of the market as long as you develop other competitive advantages, such as excellent, friendly service, good after sales service, a more specialised range of products, more knowledgeable staff, and so on.

So most businesses either concentrate on a particular market (focus) or try to make their product or service so different from the competition that people perceive this difference.


Examples of competitive advantages

Here are a few of the many competitive advantages that might apply to your business:


This advantage is most critical for retailers. If you don't have a good location can you move or get the business out to the customers with business-to-business accounts, free pick-up and delivery, drop-off points or wholesaling through businesses with better locations?

Unique or exclusive product

You have an advantage if you can source product or deliver services that the competition cannot. If you're competing against larger or similar businesses, can you establish a reputation for unique products people can't find anywhere else?



One of your best (or worst) competitive advantages will be your staff. The advantage of having friendly, knowledgeable, proactive staff must never be underestimated. The key is to make sure that your staff are motivated, trained and perform well. Do this by:

  • Establishing clear performance standards.
  • Mystery shopping the standards.
  • Starting incentive schemes.
  • Sending them on training courses.
  • Encouraging them to develop their product/service knowledge.
  • Holding yearly selling courses.

You and your image

You are also a competitive advantage. No one else has quite your mix of skills, and you can build a 'character owner' image by having your name on as much material as possible, including:

  • A signed mission statement in view of the public.
  • Signing your name at the end of all newsletters and correspondence.
  • Offering personal guarantees.
  • Becoming prominent in your community.
  • Becoming an authority in your field and a spokesperson for the industry.

Technical knowledge

If you can't compete on price, then offer superior knowledge to the other businesses around you. Consequently you should make sure staff are well trained. If you're selling specialised equipment, for example, ask your suppliers to come in twice a year to give your staff free on-the-job training.

Displaying your other services

To gain an advantage, offer things that the competitors don't, especially if they cost very little. Sometimes this may simply involve displaying a list of what you already do for customers but the majority may have been unaware of. Do not simply expect customers automatically to be aware of your competitive advantages. You must advertise and promote them.

Better supplier relationships

Being on good terms with your suppliers and their sales representatives is an often-overlooked competitive advantage over other businesses that haven't bothered to develop this closeness. A good relationship will provide:

  • Better service and support. You might get promotional material, displays and signs, plus training for your staff.
  • Better supply and faster delivery.
  • Better return policy and customer support.
  • Early notification of specials or discounts.

Large supplier backup

Being linked to a large, well-known supplier is a definite competitive advantage. You might find that they do most of the market research, develop new products, conduct customer analysis and provide nation-wide branding and advertising that enhances your credibility. An independent will find it more difficult to compete with you.


Strategic alliances and joint ventures

One of the best ways to compete against larger businesses is to form alliances and joint ventures with other businesses. For example, by banding together with other businesses in your industry, you can often gain better group discounts from suppliers than you would if you ordered on your own.

Joint venture marketing is another way of sharing advertising costs. An example is a group of shops in a particular location (such as a mall) joining together to produce an advertising supplement. But there are many variations on this theme you can brainstorm with your staff. The ability to form smart alliances and joint ventures is an increasingly important and distinguishing feature in the success of many businesses.

Following a marketing programme

Having a marketing programme is a competitive advantage, because many businesses don't have one. A marketing programme can increase business and save costs. For example, your marketing programme should include customer retention tactics and new customer targets. This enables you to cut down on advertising expenditure and focus what you do spend more sharply. More sales and lower costs mean more profit for you.


People want quick service, so the faster you can deliver your product or service the better. Hold regular staff meetings on how to streamline your business processes and fulfil or exceed customer requirements without sacrificing quality of delivery.

E-commerce and a website

One obvious way to speed up business process is through e-commerce. For example:

  • Using email extensively to communicate with your customers and suppliers
  • Having a fully functional e-commerce website where customers can browse your products and services and order online 24 hours a day, every day.

For more details read our ANZ Biz Hub article What you need to know about building a website.


Testing your competitive advantages

It's important to test what you think are your competitive advantages against the perception of others. Take a few minutes to write down the four key competitive advantages of your business, in order of importance.

The customer test

Now try the customer test. Start asking customers this question. "May I ask you: what is the most important factor that made you come to this business rather than go somewhere else?" The answers might be very different from the competitive advantages you've just defined. The key fact is this: a competitive advantage is only relevant when a customer (not you) thinks it is relevant.

The other side of the coin is that you need to educate customers about your key advantages. They may not be evident to the customers at all!

The staff test

Next try this staff test. Let's suppose that you think your number one key competitive advantage is the excellent, knowledgeable service you and your staff offer. Get someone to telephone your business and ask this question:

"Can you please tell me what you think your competitive advantage is - why I should use your business and not go somewhere else?"

If the answer that the employee gives is not the same as yours, (perhaps they replied "Because we're cheaper!") then you have a communications problem. If your key competitive advantage is not clear to everyone who works in the business, how can you hope to communicate it effectively to others?


Communicating your competitive advantage

The feedback from these tests might surprise you, but they will also prove extremely valuable in helping you to sharpen and focus the message you convey about your business to customers or clients.

Take a look at all the ways in which you communicate with customers. These include:

  • Your stationery (letterheads, invoices, statements, compliment slips, business cards).
  • Your current flyers and brochures.
  • Your advertising.
  • Your website (if you have one).

Ask yourself: what image of your business do these communication channels project? Do they consistently promote the key competitive advantages listed above? This stage is an opportunity for you to take a fresh look at these promotional channels and make the necessary changes. For example, does your Yellow Pages advert effectively communicate your key competitive advantage(s), or does it do little beyond listing the name and contact details of the business?


Monitor your advantages

Finally, it's important that you monitor the effectiveness of your competitive advantage through customer satisfaction surveys. These will give you feedback on why your customers continue to choose your business and what they perceive as your points of difference. It's also important to hold regular review sessions of your competitive advantages with your staff.

Remember too that as markets change, so will your competitive advantages. What might currently be an important advantage might become less important in the future - perhaps because of technology changes.

For example, you might have an excellent website now, while your competitor is still developing one. The advantage will erode when your competitor's site is online. If you want your business to stay at the front of the field, you do need to keep evolving new competitive advantages.

If you need help with any funding requirements concerning your competitive advantage, talk to an ANZ Business Specialist.


Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit your nearest ANZ branch


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