Anyone who has launched a business or is thinking of starting one has thought about their competitors and their impact on their success.
You need to know what you are against to have the right resources and strategies to stay ahead.
What is a competitive advantage? It’s a business theory that keeps companies afloat in the face of other companies within their niche and industry.
This article will discuss competitive advantage in business, what it is, how to achieve it, and some different types.
What is Competitive Advantage?
The term competitive advantage describes all proven methods to beat your competitors. In 1985, Harvard University graduate Michael Porter wrote a book entitled “Competitive Advantage.”
He discussed in the book two ways to gain an advantage over your competitors: lower your costs and differentiate your product from theirs (which we will discuss shortly).
It is interesting to note that the theory of competitive advantages can be applied virtually anywhere. Countries can use the idea to compete economically with other countries, and individuals can also use it for personal or professional benefit.
For the remainder of this article, we’ll assume that you are not looking for advice about how to run a nation.
We will stick to how you can gain a competitive advantage in a business. Specifically, an Online Business such as a Dropshipping Store.
What is Competitive Strategy?
Competitive strategy is what you do to achieve your competitive advantage.
It’s unimportant how your strategy looks as long as it shows that you are “in it to Win it.”
A competitive strategy must be based on your core business model to be effective.
The critical decisions are:
Your products and services cost.
Positioning and brand strategy of your company.
Your customer’s overall experience and the nature of your service.
You’ll need to decide on your marketing strategy and the channels you will use.
Partnerships with other brands.
You can constantly adapt it to your needs as your business grows. Identifying your competitive advantages and disadvantages sooner rather than later is better.
You can adopt more competitive strategies and minimize the need to change or revert to your current company identity.
Why are competitive advantages significant?
This question could be answered for many years. This is like answering the question, “Why are profitable businesses important?”
By following this strategy, your business is essentially set up for success.
You can enjoy the benefits of competitive advantages in many ways, including:
More customers: An excellent competitive advantage makes you more attractive than your competitors. It means more customers will choose to do business with you. Who doesn’t like more customers?
More loyalty There are various ways a customer can be loyal to your brand. Your competitive strategy can help build loyalty if you do it right.
More revenue Is a natural result of having more clients, especially loyal ones. If you have a high lifetime customer value, you can generate more revenue with less marketing budget.
Now that you know what competitive advantage means, let’s examine the different types of competitive strategies.
Competitive Strategies Types
Michael Porter’s model of competitive advantage uses two approaches, as I have already mentioned.
Lower Cost: This is achieved simply by selling products or services at a lower price than your competitors. It’s a great way to steal customers away from your competitors. However, it may not help you build brand loyalty.
Differentiation: This is achieved in some way. It could be a unique feature or offering, an exceptional customer experience, or added value. This unique feature will attract and keep customers and is more likely to build long-term loyalty.
Pro Tip: Be careful when developing a model with lower costs. You can easily fall into the ” Race to the Bottom,” where you and your competition keep lowering the prices until they are no longer profitable. It’s not a good way to end your career.
In Porter’s model, we can look at cost and differentiation strategies based on scope: a broad range that targets more prominent industries, groups, and segments or a narrow range with a smaller playing field. Wide cost advantage. Think Amazon or Costco. Companies with a broad cost advantage can cater to a wide audience by purchasing or producing their products at low prices and outsourcing their operations to keep costs down.
A small business cannot compete with the big brands. This is why a niche market is a sustainable competitive advantage.
Niche cost advantages. They still use a low-cost approach but cater to a smaller market segment. Instead of selling all kinds of jewelry, sell only a specific type of antique jewelry, which a subset of jewelry wearers want.
You can price your products based on the costs of other niche competitors instead of the cheaper prices of the general market. A niche cost advantage could lead to higher profits.
Broad differentiation. This approach involves a broad scope, where more prominent brands with wider audiences improve their offerings somehow. Take Starbucks as an example. Starbucks is a brand that caters to millions of people around the globe. It has built a solid reputation for its quality products and rapid personalization.
Its impact on the way we enjoy and drink coffee has paid off. In 2018, it generated nearly 25 million dollars in revenue.
Differentiation by niche. As a small business owner, you will find this to be the best way to build and grow a strong brand. You can better understand your customers when you focus on a niche.
This ultimately translates to better opportunities for building value and loyalty.
This brings us to our next section. Here are a few ideas to help you get started with your competitive edge. You’ll see that many of these strategies are niche differentiation.
How to gain competitive advantage: 7 ideas
There are many different types of strategies that can give you a competitive edge. Here are seven ways to get you moving.
Reduce Your Overhead Costs
It’s essential to keep your operating costs as low as you can. You can sell at lower prices without compromising your profits.
Starting a Dropshipping Store is a great way to get started in the ecommerce world. This business model allows you to avoid managing your inventory, which includes a warehouse and shipping products yourself.
Dropshipping has a low overhead, allowing you to enter your market quickly and attract customers.
Check out this video if you want to learn more about dropshipping.