And why you should do so
Prepare for take-off! Last week we looked at what makes you different from your competition in the eyes of your ideal customer, why it is so important to small businesses and one approach to determining your difference.
As Mark Peskett said, the challenge is to avoid being a ‘me too’ business. Sustainable competitive advantage is the force that enables a business to have greater focus, more sales, better profit margins, and higher customer and staff retention than competitors. Mark outlined five steps to determine your competitive advantage.
I’ve also addressed this challenge in some detail below, identifying your Sustainable Competitive Advantage (SCA), . Try it. I think you will find it helps clarify your thinking and get you closer to that winning edge.
Develop your SCA - a powerful competitive tool for you
One of the problems that most small businesses face in developing a sustainable future is inconsistent decision making. You may know where you want to go but if the decisions you make in an area such as marketing are not consistent with those you make in operations, or in finance or human resources, then your business will be pulled in different directions.
And pulling in different directions will ultimately degrade the performance of your business. It will be seen in:
• Friction between the different areas of your business;
• Lack of teamwork;
• Frustrated employees; and
• Wasted energy and effort.
Defining the Sustainable Competitive Advantage
The basis for consistent decision making across your business is provided through a clearly defined Sustainable Competitive Advantage (SCA).
An SCA is more than a Unique Selling Proposition (USP) although it can be similar in some circumstances. Your USP should lead your ideal customer to believe your offering is the only logical choice for them.
Your SCA is about your competitive strategy. It is the basis for your overall competitive business strategy which guides and focuses your decision making so that that all your functional strategies are consistent with a clear and concise overall competitive strategy. The impact of all decisions being aligned with your competitive strategy is far greater than the sum of the individual decisions you might make when they are not aligned to a competitive advantage.
The SCA is defined as “that special capability identified by the business that will enable it to attain a sustainable winning position in the market with respect to its major competitors.”
The ultimate test of any new policy or plan you develop is whether it is consistent with the SCA you have defined for your business. If it is not, then it should be reconsidered.
Of course, the underlying assumption behind this is that you are interested in your business being competitive and improving your profitability, but you wouldn’t be reading this blog if you weren’t.
- There are a number of important things about the definition given above:
It is a business capability which can be further developed and used as a focus for much decision making about your overall business development.
- It must enable your business to achieve a sustainable winning position in the market. This means that it must have at least a medium term and preferably a long-term competitive impact.
- Major competitors are used as a reference. This means you must evaluate the relative strengths, weaknesses and competitive positions of each of your major competitors.
- It must have an impact on the behaviour of individuals within your business.
In short, your business’s SCA statement should:
• Capture the essence of your business’s competitive strength;
• Be simple and clear;
• Be pervasive in its influence on individual behaviour.
As an example, a client developed the following SCA for their business: “We will win by the speed and effectiveness of our response to customer’s requirements.”
Very easy to say, but it required significant improvements across all functional areas of the company’s operations. For example:
- They had to identify and be in the right market niche, one that matched their ability to deliver;
- Their marketing and sales processes had to ensure they properly understood and recorded what their customers were trying to achieve;
- They had to have the right products or services to meet those requirements and ensure that whatever training and support was required was provided.
- Their internal processes had to ensure all aspects of the requirement were accurately transmitted through the business.
- Their internal processes had no operate smoothly with no delays or bottlenecks.
- Their people had to have the right product and service training, and be committed to customer service.
They would lose their competitive advantage if they couldn’t deliver an effective response quickly, or if they delivered a speedy but ineffective response.
How to identify your SCA
The first thing to do is to identify and evaluate your Critical Success Factors, i.e. those things that must be done well to ensure the future success of your business.
To help brainstorm possible Critical Success Factors ask yourself, or your team questions such as:
- What are we good at now?
- What do we have to be good at to succeed in this industry?
- Why do our customers/clients buy our products and services?
- What product and service characteristics must we provide to meet our customer’s expectations?
- Have we developed any unique resources, processes or capabilities not readily available to our competitors?
- What culture must we develop to gain a competitive advantage?
The response to questions such as these can be evaluated and ranked in a number of different ways, but I find the following matrix works well. It evaluates the Factors from both a customer and competitor perspective.
Those Factors which end up in the top right quadrant are key; i.e. they are perceived as being valuable from a customer’s perspective and have the ability to differentiate your business’s offering from those of your competitors. These should then be further evaluated for their potential tangible impact of individual’s behaviour in the business.
The source of your SCA will lie in those Critical Success Factors which are ‘high’ in all three criteria. Further evaluation and analysis may be required before you can tie your SCA down to a single statement.
It is important to recognise that the Sustainable Competitive Advantage should only contain one principal thought or factor, and that should be stated as briefly and concisely as possible.
Now to use the SCA
As mentioned above your functional strategies should be consistent with and support your SCA. So let’s look at developing your marketing strategy and policies in these terms.
Your marketing strategy is not only about identifying the right market segments to increase sales and profits; it is also about putting your business in a sustainable winning position against your major competitors. The alternative is to be reacting to competitors marketing initiatives rather than have them react to yours.
As such the marketing should at least support your SCA but may even provide the basis for it.
The issues you need to determine are:
- At what must Marketing be especially capable to sustain your competitive advantage over the next few years?
- What will be the most difficult – the particular challenge?
- What will be the most important aspects to change from now?
- What will be your Marketing performance measures?
I suggest a framework to analyse the answers, rather than just brainstorm ideas. The framework you use will be based on your definition of marketing, and in earlier newsletters I have discussed some alternative approaches, and a range of marketing KPIs.
For the moment I suggest using the traditional 4Ps approach. Key marketing issues you need to evaluate for your business could include:
- How you monitor customer’s needs and expectations
- Product/service strategy – e.g. differentiated (many features, many options, packaging, length of warranty, exceptional service) or low cost (few features, few options, plain packaging, minimal warranty, basic service)
- Distribution strategy – how do you get your products and services in front of your customers
- Pricing strategy – e.g. cost plus, matching competitors, penetration, perceived value, discounts, credit terms,
- Promotion strategy – e.g. targeted, broad, advertising media, PR, personal selling, web, sales letters/emails
- Information systems – e.g. what marketing information do you have, how do you use it?
Now you need to assess these issues on the basis of their ‘Opportunity for Improvement’ and ‘Ability to support/create SCA’. I can feel a matrix coming on.
Issues falling in the right-hand squares will tell you what your key marketing policies should be, with those in the top right corner being the most important aspects to change from now.
You need to follow this through each functional area of the business. And yes, it will take some effort. BUT, having worked with many businesses on this methodology, the SCA is a powerful competitive tool for you.
You will be making consistent decisions across your business to give you a sustainable competitive advantage.
Do you know your Point of Difference?
When clients approach me for coaching, so often they are not getting the clients they need, the right clients, or the sales they need at the margins they need. Eight times out of ten this comes down to not knowing what is working, and how to develop compelling offers for their customers.
For more than 30 years I’ve been helping small business owners use the right tactics to plug the profit leaks in their business and restoring their cash flows by assisting them understand how to develop a Sustainable Competitive Advantage for their ideal clients, and to determine the offer to bring them on board, or win that vital tender.
If you would like to discuss with me how you might do that, book a Strategy Consult here. There is no cost.
© Copyright 2018 Adam Gordon, The Profits Leak Detective