Strategies for Achieving Competitive Advantage

Strategies for Achieving Competitive Advantage

If you cannot achieve and sustain a competitive advantage, you will not achieve the long-term performance levels needed to maximise your lifestyle and wealth.

To maximise success, you must understand the key choices you have for creating competitive advantage, make an appropriate choice and stick to it!

Not making a clear choice or not sticking to it, leads to strategic drift and undermines competitive advantage.

Competitive Advantage - Key Strategic Choices

There are two broad means of achieving competitive advantage and superior business performance:

Differentiation – providing superior unique value and commanding higher prices

Lower Cost – providing good value at lower production costs

That is, you can create superior profits by establishing:

  • A differentiation strategy to achieve above average product prices (increased revenue)
  • A low cost strategy to achieve below average production costs (reduced costs)

Competitive Advantage - Differentiation Strategy

To establish a competitive advantage based on a differentiation strategy, you must focus on providing superior outcomes across key items of customer value (something that will support above average prices).

With higher customer value, this can be translated into higher relative prices or growing market share to achieve superior performance.

It’s essential to understand that most customer segments have diverse views as to what satisfies their needs in terms of their preferred value and price permutation. 

Creating a competitive advantage through a differentiation strategy commences with identifying important customer needs that have enough perceived value for customers to pay a higher price to have those needs fulfilled.

The increased value a differentiation strategy might target, may be in the form of:

  • Product features
  • Performance
  • Service levels
  • Image, etc

In creating a competitive advantage through differentiation, it’s critical to clearly and consistently communicate the higher value to customers to ensure they will recognise and pay for it.  This often involves a process of ongoing customer education.

Whilst a differentiation strategy is founded on the trade-off between the need to provide superior value and the increased costs of doing so, it does not mean costs are ignored.  Even with higher prices, great care must be exercised in managing the trade-off between value and cost.  You cannot:

  • Trim costs so far that your key points of difference no longer exist!
  • Allow costs to increase so far that the benefits of higher pricing are lost!

In creating and implementing a differentiation strategy, it’s essential to:

  • Choose a target market segment (customer, product, geographic region and so forth) with a set of higher-level needs and to service those customers and needs exclusively
  • Have a product or service that is readily perceived as having superior value
  • Clearly and consistently communicate your superior value
  • Carefully manage the trade-off between higher value and the higher cost of providing it

Competitive Advantage – Low Cost Strategy

To establish a competitive advantage based on a low cost strategy, you must focus on:

  • Serving customers who have a lower set of needs that can be served at a lower cost
  • Stripping out production costs to serve those particular needs

With lower production costs, this can be translated into higher relative profits or growing market share despite more modest pricing.

In establishing a low-cost competitive advantage, it’s necessary to identify customers that have specific needs but can live without the frills (and associated costs) and to serve that market segment particularly well.

Instead of providing extra features, advantage comes from managing the critical cost drivers to translate more modest pricing, into above-average industry profits.

It’s important to understand that a cost leadership strategy does not mean selling for the lowest price.  It means pursuing the lowest production cost for a specific and unique targeted customer value proposition.

In essence, with a low-cost strategy, it’s essential to:

  • Have a good quality product or service
  • Choose a target market segment (customer, product or service, geographic region and so forth) with lower level needs and to service those needs exclusively
  • Focus on cost reduction across the business and making it part of the culture of the business

Key Strategic Alternatives

While there are only two broad means for achieving superior business performance, they can each be used in conjunction with either a narrow or a broad focus.  That is, you can choose to focus on:

  • A broad product or service line – a broader cross-section of product, customers, market segments, etc
  • A narrow product or service line – a particular type of product, customer, market segment, etc

Together, the choice for achieving superior business performance (differentiation or low cost) coupled with the choice of focus (narrow or broad) provide the four broad strategic options of:

  • Narrow Differentiation
  • Broad Differentiation
  • Narrow Low Cost
  • Broad Low Cost

It’s critical that you are clear on your choice so that you do not unwittingly undermine the competitive advantage you seek to achieve.

Consistent Focus

Two of the most common errors made in the pursuit of competitive advantage are:

  • Not making a clear strategic choice
  • Not sticking to the strategic choice made

Instead, businesses often chase growth wherever they can find it and as a direct consequence, fail to either:

  • Establish a unique value proposition, or
  • Develop the capabilities needed to achieve superior business performance!

To succeed, you must dedicate yourself to doing something unique and become good enough at it, that you create the competitive advantage necessary to achieve above average profits.

Sustained Business Growth!

The keys to a successful business strategy are:

  • Choosing a different basis for competitive advantage to your rivals (differentiation versus cost leadership)
  • Focusing on either a narrow or broad targeted segment
  • Implementing the chosen strategy consistently over the long term
  • Changing focus only if there is a significant shift in the business environment or market conditions

If you would like to learn more about how to create a competitive advantage that will set you on the path to superior industry performance, give the team at Fortitude Business Consulting a call on 1300 551 040.

You can download the pdf version of the blog here:
DOWNLOAD FILE

About the Author

Grant Ferry

With over 20 years experience in advising business owners, I passionately believe small to medium size business are the engine room of the economy and that ongoing innovation is the fuel that powers their growth and their owner’s long-term success.

Through a wide range of practical experience, I understand that Business Strategy and Business Innovation are critical elements for sustained business success.

The right Business Strategy is needed for the business to realise the owner’s goals and dreams. Ongoing Business Innovation is needed to not only survive in an increasingly competitive and global market but to also drive sustained business growth and success over time.

Featured Articles

  • What is Business Strategy? Thubmnail

    What is Business Strategy?

    ‘What is business strategy?’, is a common question business owners and managers ask.  It’s an important question because success doesn’t happen by itself. It takes planning and deliberate action to create success. Not having a clear and well-developed business strategy is a recipe for disaster and heartbreak. As a business

    Read more
  • Do You Have a Clear Business Vision and the Right Innovation Strategy? Thubmnail

    Do You Have a Clear Business Vision and the Right Innovation Strategy?

    Trying to innovate without a clear business vision and innovation strategy wastes valuable time and money. As business owners, we all want happiness and prosperity.  We may know innovation is key, but where do you start? Many businesses just brainstorm a list of ideas and begin at the top, believing

    Read more
  • How to be Successful in Life! Thubmnail

    How to be Successful in Life!

    How to be successful in life is very much a personal matter - a unique journey through life! For most, the journey to success involves a degree of ongoing personal discovery. Discovering what’s most important as we negotiate the twists and turns of life. Where we are along this journey

    Read more
  • How to Develop Business Creativity! Thubmnail

    How to Develop Business Creativity!

    Business creativity requires an understanding of the nature of creativity and what it takes to make it flourish within the individuals and teams in your business. To survive and successfully grow a business in the long-term, creativity must form part of your business’s culture. If you’re not constantly developing new

    Read more
  • How to Innovate and Grow Your Business! Thubmnail

    How to Innovate and Grow Your Business!

    How to innovate and grow your business is an underlying need shared by most business owners.We all want to maximise our wealth and success but not every business owner knows how to go about it!It’s not a secret – innovation is crucial in order to grow your business, wealth and

    Read more
  • Overcoming the Barriers to Innovation! Thubmnail

    Overcoming the Barriers to Innovation!

    By its very nature, overcoming the barriers to innovation is about change management and moving away from the relative safety and comfort of the known. Innovation requires not only generating new ideas but implementing them and that means overcoming the barriers to innovation and change. A sudden focus on innovation

    Read more
  • What is Innovation - Moving Beyond the Hype Thubmnail

    What is Innovation - Moving Beyond the Hype

    The question ‘What is innovation?’, is often surrounded by a lot of hype and mystique.Because of this, innovation is often misunderstood.This can be tremendously detrimental to those wanting to get started on their innovation journey and should be avoided at all costs.Instead, the answer to ‘What is Innovation?’ should be

    Read more
  • Creativity and Innovation – The Keys to Success! Thubmnail

    Creativity and Innovation – The Keys to Success!

    Creativity and innovation are fundamental to long-term growth and success! Success requires that you not only create sufficient value for your customers, but critically, that you capture enough of that value for yourself! This involves identifying opportunities, diagnosing problems and developing and realising valuable commercial solutions. Central to this process

    Read more
  • Failing to Innovate Destroys Businesses and Industries! Thubmnail

    Failing to Innovate Destroys Businesses and Industries!

    Failing to innovate leaves businesses and industries at risk of destruction. Competition constantly increasesand customers’ expectations constantly grow.  No matter how successful you were in the past, you need to innovate to survive. This means not just changing but making the strategicchangethat leads to greater value and sustained business growth.

    Read more
  • Ten Critical Elements to Drive Business Growth! Thubmnail

    Ten Critical Elements to Drive Business Growth!

    Innovation is vital to drive business growth, resilience and long-term survival.  Success will follow if you use creative ideas to generate new value and growth. Innovation is more than coming up with new ideas, it's about finding and putting winning ideas into action! What distinguishes the successful businesses, is their

    Read more
  • How to Create a Business Strategy! Thubmnail

    How to Create a Business Strategy!

    To achieve superior performance, it’s essential to know how to create a business strategy.  You must create arobust business strategy that’s unique to you and clearly details how you will succeed in the competitive environment in which you operate. There is no single best business strategy! Instead, when creating your

    Read more
  • Why Businesses Need a Mission and Purpose! Thubmnail

    Why Businesses Need a Mission and Purpose!

    Your business mission and purpose play a pivotal role in creating your success.Creating success requires planning, innovating and taking deliberate action to shape your future the way you want it to be.You must have a well-developed and clear business mission and purpose that complements and furthers your personal goals and

    Read more
  • How to Undertake a Pestle Analysis Thubmnail

    How to Undertake a Pestle Analysis

    The pestle analysis is a tool used to help identify opportunities and threats in the broader business environment and in turn, develop suitable responses. Regardless of size, all businesses are impacted by the environment they operate in. The business environment is highly complex, constantly changing and varies significantly from one

    Read more
  • Why Businesses Struggle to Innovate Thubmnail

    Why Businesses Struggle to Innovate

    Typically, businesses struggle to innovate because of disproportionate optimism. Logically, innovation makes a lot of sense and most business owners understand that it’s a key driver of their long-term success. Nevertheless, they often struggle to innovate and fail to engage in the ongoing innovation activities needed to sustain long-term success!

    Read more
  • Innovate to Survive or Risk Dying Young! Thubmnail

    Innovate to Survive or Risk Dying Young!

    You must innovate to survive.As a business owner, you’re probably quite time-poor.If you don’t get much time to think about strategy and innovation – you’re not alone.In terms of priorities, the main thing is that everything keeps running smoothly.Right?...Wrong! Innovate to Survive - Are You Living in the Past? There

    Read more
  • Business Strategy – Are You Making This Strategic Mistake? Thubmnail

    Business Strategy – Are You Making This Strategic Mistake?

    A critical strategic mistake many business owners make when it comes to business strategy, is striving to be the ‘best’.Too often business owners mistakenly believe that striving to be the ‘best’ is a strategy that will lead to superior business profits.They aim to be the best (they think in terms

    Read more
  • What is Innovation Strategy? Thubmnail

    What is Innovation Strategy?

    What is innovation strategy, is a common question that business owners have. Given that innovation is critical to creating and sustaining a successful business, it’s vital to have a sound innovation strategy. Those that approach innovation on impulse typically perform poorly! It’s critical that the investment in innovation aligns with

    Read more
  • Evaluating Business Opportunities! Thubmnail

    Evaluating Business Opportunities!

    Evaluating business opportunities is an essential task business owners must undertake effectively. Successfully evaluating business opportunities requires a sound and objective process. Sometimes business opportunities find you (and on other occasions) you need to diligently search for them.  Either way, preferably your efforts identify multiple opportunities with potential. Once you

    Read more
  • Critical Success Factors Thubmnail

    Critical Success Factors

    As a business owner, the sheer number of tasks you need to perform makes it essential that you establish and focus on the critical success factors!  The breadth of your responsibilities can make it exceptionally difficult to know what to focus on, what to delegate, and what to ignore! With

    Read more
  • Why Mindset Matters to Innovation! Thubmnail

    Why Mindset Matters to Innovation!

    Your mindset determines business innovation effort and is one of the most powerful determinates of success and the outcomes you achieve in your life. It can be the fuel for ongoing learning, continuous improvement and the foundation for your success, or it can be the source of insurmountable obstacles that

    Read more
  • How to use Porter’s Five Forces Thubmnail

    How to use Porter’s Five Forces

    Regardless of your industry, Porter’s Five Forces is a powerful tool business owners can use to understand: The dynamics of the industry their business operates in The key drivers of its profitability How your actions may affect your industry position and level of profitability If you do not have a

    Read more
  • Strategies for Achieving Competitive Advantage Thubmnail

    Strategies for Achieving Competitive Advantage

    If you cannot achieve and sustain a competitive advantage, you will not achieve the long-term performance levels needed to maximise your lifestyle and wealth. To maximise success, you must understand the key choices you have for creating competitive advantage, make an appropriate choice and stick to it! Not making a

    Read more
  • The Key Elements of Innovation Thubmnail

    The Key Elements of Innovation

    Being able to manage the key elements of innovation so it becomes a focused, well-developed and repeatable activity, is a key characteristic that separates the most successful businesses from the rest.Effective ongoing innovation requires a focus on the three key elements of innovation. These are having:A well developed and clear

    Read more
  • Finding Opportunities for Business Growth! Thubmnail

    Finding Opportunities for Business Growth!

    If you aren’t constantly exploring for and finding opportunities for business growth, you’ll be going backwards. You need to be finding opportunities to create the new value needed to maintain your competitive advantage and stay ahead of your competitors! A lack of business growth destroys your business’s viability, putting your

    Read more

Leave a Reply

Your email address will not be published. Required fields are marked *

You can download the pdf version of the blog here:
DOWNLOAD FILE


  • Testimonial Author Thumbnail

    "I have come to know Grant recently and have engaged his services to assist in the operations and structure of Books In Shape. His knowledge, expertise and wisdom exceeded my expectations on each occasion he has consulted with us. Every time we met to discuss various aspects of our business, he was punctual, reliable and went out of his way to provide a service with a high level of excellence. I highly recommend Grant as a man who not only has a wealth of knowledge, but as one who is able to astutely apply it to the situations faced in business. We have benefitted greatly as a business as a result of his input."

    ~ Keith Berry – Managing Director, Books In Shape Pty Ltd
  • Testimonial Author Thumbnail

    "Grant has helped me manage a wide range of business challenges.  His unrelenting pursuit of positive outcomes has helped me achieve my goals, both personal and business. He is truly committed to my success."

    ~ Brett Pickering – Managing Director, Fruit Master
  • Testimonial Author Thumbnail

    "Grant dedicatedly works as a true business partner in a way that we find both very refreshing and rewarding in today’s business environment.  He has been pivotal to the effective management of our business and attending to many pivotal commercial issues and transactions.  No matter what the situation at hand, Grant always has something valuable to bring to the table."

    ~ Col Beasley – Managing Director, Thurla Farms
  • Testimonial Author Thumbnail

    "For over 15 years, Grant has provided me with expert financial and commercial advice and support that has translated into significant value.  He has been invaluable in taking a lead role in developing and implementing strategies that enhance my business’s performance and my personal wealth and security."

    ~ Frank Tierney – Managing Director, Tierney Property Group
  • Testimonial Author Thumbnail

    "We have been working with Grant for more than 20 years and have relied on his expertise during the acquisition, growth and sale of a range of business ventures through this time.  He has a sound appreciation for our personal goals and provides us with the high-level business advice and support we need to make the most of our opportunities.  His breadth and depth of knowledge, negotiation skills and in particular his ability to bring new ideas to our businesses, have been a significant asset that continues to play a pivotal role in growing and protecting our business and realising our long-term dreams."

    ~ John O’Connor – Managing Director, Sharps Australia
  • Testimonial Author Thumbnail

    "We had no idea that we were steering a rudderless ship until we spoke with Grant. Through revision, vision and the ownership that Grant has applied, our business has found a new and exciting direction.  Our goals for growth are now in view and we feel confident and excited about our future."

    ~ Shaun Halit – Managing Director, Rural Fence & Trade
  • Testimonial Author Thumbnail

    "I have known Grant for many years, and have worked collaboratively with him to assist his clients with their legal and taxation needs.  During this time, I have been extremely impressed by Grant’s comprehensive understanding of his client’s businesses and the care and concern he shows for addressing his client’s issues. Grant is a very proactive adviser, thinking two or three steps ahead and addressing issues before they become a problem. I have seen first-hand on numerous occasions how Grant’s skills and deep understanding of how businesses operate have led to genuinely innovative solutions. As a legal adviser, it is a great help working with an adviser who has such a comprehensive knowledge of what the client is looking to achieve, and can add his own experience and lateral thinking to help resolve legal issues. Above all Grant takes genuine care of his client’s, treating the needs of their business as if it were his own. No stone is left unturned if it can lead to an improvement in the business, or could become a problem in the future. I would recommend Grant to any small to medium business owner who is looking to improve the way the business operates, needs help to address something holding the business back, or wants a knowledgeable and trusted adviser to help guide them."

    ~ John Storey – Managing Director, Velocity Legal
  • Testimonial Author Thumbnail

    "Grant has been a great asset to The 500 Group providing business advisory and strategic planning services. Grant’s expertise and advice helped navigate The 500 Group through complex commercial and legal issues and assisted enormously in the growth of the business. We are grateful for his support and professionalism and would recommend Grant to anyone who is looking to maximise the value of their business"

    ~ Greg Pierlot – Managing Director, The 500 Group Pty Ltd

Find out how we can assist your business today! Contact Us