Business StrategyYesterday a client mentioned that they were working on what makes them different or what message they want to put out there.  Really how should they market their company.  When is comes to building your competitive advantage who better to turn to that Michael Potter.  Michael Porter is a Professor in the Institute for Strategy and Competitiveness at the Harvard Business School, and an international authority on strategy and economic development. He has published 16 books and more than 100 articles, so he should know!

Your company should be conducting activities that incur costs in hopes of generating value. Your Competitive advantage and profit depend on these linked activities in the value chain. By paying close attention to the value chain enables you to identify the products or services that your customers want most and are willing pay a premium. Businesses should create their competitive advantage by choosing which activities to engage in, and how and where. And your strategy is how you configure those activities.

Companies that decide to compete on the basis of cost should arrange their activities differently from firms that decide to compete on the basis of differentiation. Your competitive advantage will rest on how well the strategy you choose to execute generates value fro your clients. You can choose between three generic strategies to produce your competitive advantage:

First: Cost Leaderhip

You may seek to become the lowest cost competitor; this can be achieved several ways, depending your sector.  Look to economies of scale, technology, raw materials and other factors to provide your cost advantages.  As to become the low-cost competitor, you must understand and use the cost advantages that matter most in your sector. If your business can achieve the industry’s lowest costs and still charge average prices, you should perform better than the norm.

A note of warning, do not pursue cost exclusively as differentiation will still matter to your clients.,  Your customers must regard your products and services as being at least as good as those of  your competitors. Otherwise, this could force further price cuts.  If you fall into a cost warfare this will risk damaging your overall profitability and an industry’s structure.

Second:  Differentiation

You could decide to distinguish itself from your competition by offering and providing superior value, and particular service or product attributes. This from of differentiation will vary from industry to industry and by using differentiation will increase your costs.  If you are looking outperform the norm for your sector, you should also be able to charge a premium price for the difference.  The increase cost for your services or product can’t just compensate for your higher costs; it should also achieve higher margins for your business.   Your cost base should be close your your competitors’ total costs.  Look for ways to cut expenses in areas that will not impair your differentiating traits, such as the way it does something that customers value but that its competitors are not doing.

Last: Focus

A focused strategy for your company will target specific industry segments and ignoring all others. Your clients in these segments should have individualistic requirements, so that the focus alone will become your genuine competitive advantage. The strategy of focusing works best when your competitors are not meeting a segment’s needs.

What do avoid

Businesses can become “stuck in the middle” when they fail to select and stick to a particular strategy and adopting more than one of these three strategies is very difficult, unless you can assign different strategies to different business units. In some cases, however, cost and differentiating strategies may be compatible, such as when:

• Competitors have not made clear strategic choices and are mired in trying to decide.

• Market share and relationships heavily influence cost.

• A firm innovates in a unique, powerful way

What is our competitive advantage?  Arrange a call and find out

Competition is the keen cutting edge of business, always shaving away at costs. Henry Ford Post