Do you ever look at successful companies and wonder how they got to where they are today? Sometimes it sounds so easy: Invent a product that’s better than anything else on the market.
But we all know it’s not so simple. Competition is fierce. Consumers are fickle. It takes time, money, and hard work, and, even then, it might not be enough. We’ve seen it firsthand in 2020 as the COVID-19 pandemic caused unprecedented upheaval in industry after industry.
In most cases, businesses are facing stiff competition. If you have a good idea, there are likely dozens or even hundreds of competitive products or services out there. Finding that competitive advantage and exploiting it to your benefit is essential. When you achieve it, that’s when the magic can happen.
Overview: What does it mean to have a competitive advantage?
Having a competitive advantage means you have leverage over your competitors. You might indeed have a superior product, or you might be able to produce a similar product at a lower cost, resulting in a higher profit margin. You might find a new way to market, create a new category of business, or exploit a niche.
There are dozens of ways to gain a competitive advantage. We’ll discuss some of the more common ones below, along with examples.
What to consider before establishing a competitive advantage
Developing your competitive advantage starts with doing some research and introspection. It will take a candid review of who you are, what you do, what your competition is doing, and what the market movers are.
1. Market analysis
Developing a competitive edge requires you to understand the market you’re in. Take the time to learn everything you can about your industry, what motivates buyers, and where your company fits in the mix. Use business intelligence tools to analyze your competitors for weaknesses and missed opportunities you can exploit.
2. Market strategy
After the analysis comes the marketing strategy. This is where you identify how you can gain a competitive edge. In sales, they call it the USP: Unique Selling Proposition. What sets you apart from your competitors that you can use to favorably position yourself?
3. Market measurement
All too often, companies forget to define success. It’s about more than just the bottom line. You’ve got to set your goals and measure success against those goals. The best companies design a strategy, define success, and relentlessly measure progress.
8 competitive strategy examples
Companies with competitive advantage have taken many different paths to establish themselves. This list of competitive advantages highlights a few of the most common strategies businesses have used to get that competitive edge.
1. First-mover advantage
First movers can gain a significant advantage over rivals and make it cost-prohibitive for later entrants. Coca-Cola was started in 1896. Pepsi didn’t start selling until 13 years later, and it’s never caught up. Today, Pepsi is the No. 3 soft drink in the category behind Coke and Diet Coke.
There’s a lesson to be learned here, though. Just because you have a first-mover advantage doesn’t mean it will remain that way. Just ask the folks at Eastman Kodak, who developed the first digital camera; AT&T, which created the first commercial cell phone; or Netscape, which created the modern browser.
2. Build a better mousetrap
Build a better mousetrap, Ralph Waldo Emerson once said, and the world will beat a path to your door. Many have tried. Few have succeeded. Those who have built truly better products, however, have dominated categories.
There were many attempts to produce tablet computers. The market didn’t take off until Apple built the iPad. Zoom was a late entrant into the video conferencing game, but its product was easier to use and built on a freemium model that led to explosive growth during the pandemic.
What do Archie, Veronica, and Jughead have in common? It’s probably not what you’re thinking. They were all internet search engines. Infoseek, WebCrawler, Lycos, AltaVista, and Ask Jeeves were all early entrants in the search game. Google didn’t launch until 1998 after a relatively unspectacular entry as BackRub by Google’s founders.
Businesses built on technology can be particularly vulnerable because of its evolutionary nature. New entrants are also unburdened by maintaining legacy products.
3. Finding market niches: flanking
The military tactic of flanking is not to attack opponents head-on where their strengths are concentrated but to attack from the side and exploit an opening. In business, it’s often used to find a profitable niche or redefine a category. It can be an effective strategy when entering a mature market or up against market leaders.
Smirnoff has dominated the vodka market since its inception in 1864. Absolut entered this mature market by pricing its products 50% higher. It flanked Smirnoff by creating a premium vodka space.
In another flanking example, Jiffy Lube took on auto dealers and repair shops by focusing on the quick-change oil niche.
One thing these companies quickly learned, however, is that once a niche is created and becomes established, they’ll be facing other entrants that either compete directly and can siphon market share or create their own niches.
4. Category creation
Sometimes it’s not about finding a niche but about creating an entirely new category.
You may have never heard of Axon Enterprises, but you know their products. The company’s TASER offered law enforcement a less-lethal alternative to using a gun. It created a new category of law enforcement technology, which is leveraged by adding body cameras.
Who would have thought you could build a business about getting into stranger’s cars? Uber did. Tesla has now become the world’s most valuable automaker by creating electric cars that were fast and elegant. SpaceX and Blue Origin are now trying to create the private space industry category.
5. Superior customer service
Doesn’t every company claim to provide superior customer service? If only it were so! It makes you wonder why so few deliver on their promise when you consider that is based on how customers feel they’re being treated, and in deciding which companies earn their business.
Customer service stories about Zappos are the stuff of legends, such as the customer service rep who bought a plane ticket to hand-deliver a purse full of jewelry accidentally mailed with a return, or the rep who spent hours shopping for shoes for a customer on a competitor’s website because Zappos was out of stock.
When Amazon became the market leader in electronics, Best Buy reimagined itself as a knowledge leader instead and ramped up its Geek Squad and personal advice.
6. The network effect
The network effect occurs when the more people using a service increases the value to its users. Facebook, Instagram, and Twitter are examples of the network effect. It’s become difficult for others to compete, especially because, as upstarts grow, these companies tend to acquire them or launch competing services.
Building successful competitive products against the social media giants may take creating new product categories or finding niches, such as LinkedIn’s business-focused approach to social media or TikTok’s focus on music and younger users.
7. Brand mission
Did the world need yet another fashion company? What about a sock or shoe company? The category was crowded, well-established, and carved up into niches already. So how did Bombas and TOMS Shoes compete? They established themselves as mission-oriented companies.
TOMS shoes used a similar model to build a but has now become a cautionary tale. As the novelty wore off, the company faced increasing competition from lookalike companies that offered similar products at lower prices. The company by creditors in December 2019.
8. Big brand recognition
For any number of reasons, when brands gain a significant competitive advantage, they can become so dominant that they become universally known. Kleenex and Xerox had to fight copyright battles because their names became synonymous with facial tissues and copiers.
Companies such as Nike (the swoosh), McDonald’s (the golden arches), Apple (the stylized Apple) are so established they don’t even have to use their name in advertising and yet maintain a sustainable competitive advantage. Competing against the big names typically means finding niches or competing in other ways, such as price.
Finding your competitive advantage
The list of competitive advantages goes much deeper than these. Companies compete on cost leadership, no-frills buying experience, economies of scale, intellectual property ownership, and more. There are many ways to gain a competitive advantage and many more that haven’t been invented yet.
Amazon defined e-commerce and then changed the game again with free shipping, forcing other retailers to compete on its terms. Next came Amazon Prime and free two-day shipping. Now it’s about same-day delivery. Gaining a competitive advantage and maintaining it means a dedication to constantly looking at what’s next.
In lean management theory, there’s the goal of continuous process improvement. It’s the act of constantly finding ways to improve processes and the bottom line. When it comes to creating a competitive advantage for business development, it’s about continuous improvement as well. It’s the process of continually defining and refining how you compete to gain — and keep — that competitive edge.