As the old truism has it; ‘Give the people what they want and they will buy’; if you do that successfully and you do it better than other businesses making a similar offer you have competitive advantage. Let’s look at this a bit more scientifically. There are five major sources of competitive advantage:
Simply put, you do something materially better than anyone else. The competence (or capability) of designing and delivering a fantastic Graphical User Interface (GUI) is an Apple distinctive competence. The user experience with other products is compared to the Apple standard.
Can you call the market? Are you able to get inside the customers’ head? Do you constantly try to envision the future market landscape? Businesses that do this well lead the market place. Amazon (led by the visionary Jeff Bezos) do this well. First to on-line books, first to fulfilment excellence, first to running a competitive market-place, and first to leverage their technology as a platform others can use. We’ll see whether they win the e-reader battle, but they’re doing well so far.
Inside Track Access to Suppliers or Customers or Talent
You have relationships others simply can’t compete with. Metro newspapers in stations is a great example. Tesco Clubcard, giving direct access to customer behaviour, which even customers might not be conscious of. Holding the only Rolex concession is a large town will make you the local go to jeweller for that watch brand. Employers of Choice brands have the pick of the best people; Google, McKinsey, Apple.
You build your own eco-system of offerings. Microsoft Office running on Windows offering very high interoperability. Gillette razors need Gillette blades, end of story. Geography can be important; links into China either for export potential or product sourcing can provide significant advantage.
Your way of doing things outperforms the competition. The John Lewis retail experience is different because of its peoples’ service and product knowledge skills. GE has a very strong earnings performance culture. Interestingly this form of competitive advantage can be the hardest to replicate.