What is a Competitive Advantage?

Sep 01, 2011

What is a Competitive Advantage?

A competitive advantage is a strength or capability that enables an organization to meet a customer or market need better than the competition. Competitive advantages are core organizational strengths that are difficult for competitors to recreate or duplicate.

A competitive advantage defines what your organization is best at in your market. They are unique strengths that your customers value.

What is a Competitive Advantage?

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Why is defining a competitive advantage important?

You need your competitive advantage as the basis for your organization’s approach to growth – to fully realize your organization’s growth potential, you need to understand what your organization does better than your competitors and why your customers value that.

What are the Key Components of a Competitive Advantage?

Component #1 – The biggest and best of your core strengths.

Your identified competitive advantages are also the best of the best from your organization’s core strengths. We recommend completing your organization’s SWOT analysis before considering organization’s competitive advantages.

Pro Tip:

Do not just list your organization’s strengths from your SWOT as your competitive advantages. They must be strengths, they must be hard to replicate, and they must be valuable to your customer.

Component #2 – What your customers value the most from your organization.

What do your customers value most from your organization? If a customer was to enter the marketplace right now, what do they value the most from your organization, and why would they choose you over your competitors?

Pro Tip:

Think about answering the question, “why do customers choose us over another offering in the marketplace?”

Component #3 – An advantage is difficult to replicate

True competitive advantages are difficult, expensive, or impossible for your competitors to replicate. The idea is that your organization uses these advantages long-term to further differentiate or create a competitive moat from the competition.

Pro Tip:

A good example of competitive advantage is Tesla’s network of charging stations across the United States. Other EV makers would have to invest significant financial resources over many years to match Tesla’s private charging network.

Competitive Advantages are not:

  • Traits your competition could copy or replicate without tremendous effort. A true competitive advantage would be difficult, expensive, or impossible for a competitor or replicate.
  • Advantages aren’t just strengths. Don’t just list your strengths as advantages. Sure, they’re important, but a strength doesn’t necessarily give you a leg up over the competition.
  • Advantages aren’t things that don’t add value to your customers. You might think an advantage is something valuable to your organization, but your customers must value it in the marketplace. Advantages are reasons your customers choose you over your competition.. Advantages are reasons your customers choose you over your competition.
  • Traits your competitors also have. If your competitors also have that advantage, it’s no longer an advantage. It’s just table stakes to be competitive in your marketplace.

Pro Tip:

Think of competitive advantages as strengths your organization possesses that are core to your success. These strengths are ones you uniquely possess – your competitors don’t have them, and can’t create them easily. Checkout this exercise to identify competitive advantages.

How to Write a Competitive Advantage Statement

Pulling together your competitive advantage statements can be broken down into three key elements.

  1. Your business name: Simply list the name of your organization.
  2. What you are best at: State the strength or core compentency that is your advantage.
  3. Why it matters: State why it matters to your competitive market or customer.

Advantages from Your Competitor’s Shoes

One helpful way to think about competitive advantages in your market is to take a step back and think about them from the perspective of your competition.

When looking at your competitor’s advantages, we like to ask three simple questions:

  • Why do they win? Think about your competitor’s core strengths and why those core strengths are valuable to your customers or market. If they win business over you, why?
  • Why do they lose? Alternatively, it’s nice to think about why they lose business, either to your organization or to your competitors. What are their weaknesses?
  • What do we believe is their 5-year BHAG (big hairy audacious goal?) It’s not always clear, but sometimes you can make a hypothesis about your competitor’s direction and 5-year BHAG. A few examples might be a competitor starting to focus on an enterprise market where they’ve concentrated on mid-market organizations in the past.

Looking at it from a different context helps you understand a few essential ideas from a different perspective. First, it allows you to understand what your competitors are good at and where you think they are going in the future. Secondly, it will enable you to consider why they lose and how you might capitalize on that in your growth strategy.

Put Your Competitive Advantages to Work

There are really three core ways you can leverage your competitive advantages to put your organization in a better competitive position:

  • Take action on strengths or items that should be advantages but aren’t currently. If you look at your current set of strengths and see a strength that is not yet a true competitive advantage, consider setting a set of objectives or goals to turn that strength into a competitive advantage. What do you need to invest in to make a strength a competitive moat?
  • Go after your competitors. When you conduct a market analysis, what advantages do your competitors process that you could target? Remember that advantages generally take a significant investment to achieve. How might chasing a competitor’s advantage change your position in the market or dethrone a competitor?
  • Strengthen your current advantages. Look at your current set of advantages and assess if there are actions you can take to strengthen them. How can you further distance yourself from the pack?Looking at it from a different context helps you understand a few important ideas with different perspective. First, it allows you to understand what your competitors are good at and where you think they are going for the future. Secondly, it allows you to think about what why they loose and how you might capatlize on that in your growth strategy.

3 Examples of Competitive Advantage

  1. Tesla’s supply chain and in-house production of batteries produce high-quality battery packs for their products at reduced costs, creating a better product for the customers.
    Why this is an advantage: Tesla’s supply chain and in-house battery building capacity are unique, allowing them to create better products that their customers desire.
  2. Google’s search engine is the fastest and most reliable market, allowing users to search multiple queries quickly to find the best search results.
    This is an advantage: Google has the fastest search engine with the most reliable results, meeting the customer needs better than the competition.
  3. Coca-Cola offers the most extensive selection of drinks in the marketplace, allowing them to serve multiple markets and quickly adapt to consumer consumption shifts or demands.
    Why this is an advantage: Coca-Cola can provide drinks to many markets and shift their product strategy and development quickly to meet what the consumer wants.

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