First mover, our smarter staff, our patent, our IT systems, our design, critical mass, established base, innovation, good reputation, strong brand, customer service, agile, lean, secured supply, know-how, low retail prices.
When you try to describe the competitive ad vantage of your venture you may find yourself using one of the above words/phrases. Whilst they are a source of competitive advantage they ultimately boil down to just two underlying advantages:
- Cost or Perceived Quality
Low cost – you have a capability or position that enables you to produce or deliver your product or service for less than your competitors can. And you have been able to achieve this without effecting the quality of you product/service or the willingness of a consumer to purchase it. This means you can either maintain a larger margin or lower your price compared to your competitors. E.g. a patented technology that improves production efficiency.
Perceived quality – you have a capability or position that enables you produce or deliver your product or service at a higher perceived quality compared to your competitors. Importantly, you have not had to increase your cost base in order to deliver this increase in perceived value. E.g. A brand that positions your product as premium item.
Lastly, it is hard to pursue these strategies simultaneously. There is a limit to how cheap you can make something before it begins to effect the quality. Similarly there is a limit to how much you can improve the quality without having to increase price. The only way this can occur is through a technological advancement. For example, a new technology that increases reliability of the product whilst improving production efficiency (think car production).
Remember, when thinking of the competitive advantage, and the strategy attached to this, it is handy to talk not only in terms of the source of your advantage, but actually what it is – cost or perceived quality.