What is your competitive advantage? Really?

competitive-advantage-sumo-2

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.

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4 responses to “What is your competitive advantage? Really?

  1. interesting – however I would classify Low Cost and Perceived Quality different side of the same coin – ie the competitive advantage of a business is to be able to deliver a product of a perceived quality level that costs less than its competitor can whom delivers the same level of perceived quality, by using what you described in the first paragraph eg better processes, branding etc.
    I would then throw in another competitive advantage to consider – delivery of an offering using a “disruptive” model. For example the many SaaS subscription model compared to one-off/up-front pricy software package. These company offers the same product/service but through using a completely different business model and pricing (sometimes through new technology/capability) they are able to serve a segment of customers better or can now serve a new segment of customers (that previously could not afford it) and in some cases the incumbent business can’t even compete with.

    • Are you describing a ‘cost’ in the sense of price or cost to the producer?
      If there is no difference in quality then you are not operating on a quality advantage.

      If you are a firm operating at your max efficiency, you can only move in one direction – cost or quality – as they will be constantly traded off.
      By trying to choose both, you end up being beaten by others who ever have lower costs or higher quality at your same position in the market.

      I think Saas is a technology shift that has allowed perceived quality to increase whilst enabling producers of it to incur lower costs of delivery.
      Only with an advance like this can you see both perceived quality and producer cost improve simultaneously.

      The point is we don’t tend to think of cost or quality as the root of CA.

  2. I guess I was trying to say the competitive advantage is having a bigger gap between your cost & your perceived quality compared to your competitors?

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