How to achieve the elusive competitive advantage

If there is one axiom in business, it is that every business owner wants to have an advantage over their competition regardless of the type of business they have. The question is always how to have a competitive advantage. The answer seems to be to present a better value proposition to the customer than the competition.

By Michael Denning  |  Professor of Practice

If there is one axiom in business, it is that every business owner wants to have an advantage over their competition regardless of the type of business they have. The question is always how to have a competitive advantage. The answer seems to be to present a better value proposition to the customer than the competition.

Many businesses believe that by lowering price, they create a better value proposition — defined as the relationship between what the customer believes they are getting vs. what they believe they are paying. In some cases, this may be true, but at what cost to the profits of the business? There are many ways for a business to improve its value proposition relative to its competition.

Price is just the most obvious and easiest one to pursue. It is important to remember that value is a perception and the buyer, not the seller, establishes it. If the customer's need is great and urgent, the customer will place a much higher value on fulfilling that need than they would for something that they would like to have, but do not require.

If a company can produce a product or service offering more efficiently than its competition, and therefore at a lower cost, it can present a lower price and still maintain good margins. Absent such efficiency, to lower price is to lower profit. In today's interconnected world, customers and prospects are well-informed about alternatives and their costs.

An alternative to the price approach is to offer a solution that is different from what the competition is offering, and change the customer's perception of the offering's benefits for the price. In other words, offer them a deal that would be hard to refuse. This may sound easy, but remember that customers are well informed. Maybe the terms of the sale are as important as the price. Or, it could be that availability or delivery of the product or service is most important, or guarantees of satisfaction.

The business that understands its prospective customers' needs and the value those customers place on the solution will be the one that succeeds. Being "different" from the competition can be as simple as understanding the customer more fully than the competition, and therefore creating that elusive advantage.

First published in The Arizona Republic, April 28, 2015.