Creating a Competitive Advantage
What does business success look like? Suffice to say, there are many permutations or options. It could mean becoming the best in terms of returns on investment by creating a bigger business, better products, recognized brands or a great business moat, a great place to work for, and many other things. Getting a business to the next level of competitiveness requires more than just a good quality product though. Competitiveness can come from any facet of economic life, from product development (innovation), sourcing, production, marketing, logistics, distribution, sales, to customer service and customer relationship. Some value to the customer is created upstream while others are created downstream. Take a hairstylist for example, he could claim to know certain styles but he can hardly maintain monopoly over that uniqueness. It is also hard to figure out a unique process or equipment to deliver his service. Instead, greatness could easily be achieved via the look and feel of the salon studio. He could provide certain conveniences or promises, which can make clients loyal and ensure repeat business. If he can consistently deliver that quality service, in marketing jargon he would have created a brand promise and delivered on it.Creating uniqueness is a matter of both art and science (knowledge, extensive research and consumer taste tests). The first challenge is to review the product “differentiating attributes”, which you believe customersare able and willing to pay for. Lets consider a horticulture business for example. Product attributes are freshness, variety, health impact, consistency, availability, affordability and service attributes such as convenience and customization. Using either primary or secondary data related to existing market offerings, lets say we come to understand that there is a consumer segment that value taste of fresh produce, but the industry is focused on delivering volume at lower price. You know that taste is influenced by growing conditions, and that only a fraction of every harvest is of the highest taste standard. This could be a differentiation opportunity if you can exploit it.
The belief in the past was that a business simply needed to master the art of listening to customers, understanding their needs, and developing products and services that met those needs to be sucessful. This mantra drove decisions related to products, prices, packaging, store placement, promotions, and positioning. While this is certainly true, it is not however, the only truth. The other reality is that other businesses are increasingly finding success not by being responsive to customers’ stated preferences but by defining what customers are looking for and shaping their “purchase criteria”.
The important fact is that while consumers differentiate taste, producers and manufactures create the criteria for differentiation. My friend drives a Volvo, he claims it is safe, but is it safer than my car? He admits that it is not necessarily a better car than my Ford. Actually he didn’t determine that purchase criteria of safety, Volvo did, he is just riding on it. There are literally thousands of products in your competition. Others compete ferociously against you not to prove superiority but to establish uniqueness over your product. That uniqueness becomes the purchase or dinning criteria at your restaurant for the client, and on top of it, you could demand a premium.
Lets also say through your research as a grower you find that the same segment that values vegetable taste highly also values health benefits. The big question for you then becomes how to position and market your produce to take advantage of this. You might want to know whether the service attribute of convenience strongly influence food buying behavior? If it does, the million-dollar question for you then becomes, how can I combine convenience with a superior quality to create uniqueness for my product?
You might work on isolating the tastiest produce from every crop and define the purchasing criteria for consumers. To do this, you could choose to invest in a customized human sorting and packaging facility to ensure that product uniformity and product freshness is ensured and maintained. This could yield uniqueness or an opportunity to be great. But to deliver a promise of freshness in the business where your product has short shelf life, it could mean you also need to invest in logistics to shorten the period between harvest and consumption. Through a custom logistics operation the desired freshness and consistency could be achieved. In order to build a brand based on product distribution, you might want to understand the distribution landscape and choose the right channel to match the life cycle of our value proposition. In this context, your distribution strategy is a part of our value proposition and positioning strategy.
Alternatively, you might want to determine what form your product should have in order to be attractive to the target market. For example, you could decide to position your tasty produce as a snack and a specialty gourmet product that would meet both the health and convenience attributes desired by the consumers. Vertical integration is another option. This is the business model option some luxury brands like Louis Vuitton use, and because of it, you never find Louis Vuitton products on sale. Louis Vuitton not only owns its own factories, but the company also leases the space it uses for the LV mini boutiques you see on the selling floor of various department stores. This way, Vuitton controls the actual manufacturing of its products (if a certain handbag isn't selling, it can decrease production of that handbag) and it can staff and operate those mini boutiques directly.In addition to relooking at your sorting and distribution channels, you might also consider, vertical integration of some sort. Controlling the distribution channel means you control the price. Without a middleman, margins are higher, offering a plumper profit cushion during downturns. This practice also confers exclusivity, since you can buy a given product only from an authorized dealer where price is fixed.
It is really possible to differentiate in several dimensions including taste, consistency, and the positioning of produce as a healthy and convenient snack, thus fulfilling several underserved needs. These value proposition could give birth to your business’ brand promise, a differentiated produce using a distribution channel that commands a consistently higher price throughout the year.
Bo Burlingham in his book “Small Giants” makes an interesting observation that we have come to accept certain mantras as business axioms. For example, there is a saying that a business must grow or die. He argues that this is not true and in fact makes a point of profiling many small business that deliberately chose not to grow. For these businesses, getting a very good return on their investments is not their only goal and in fact for some, it is not the paramount goal. They are also interested in being great, creating a legacy, a great place to work, having great relationships with their suppliers, making a contribution in the communities they live in or simply finding a great way to live their lives. Some have learnt that to excel in some of these ways, they have to limit their growth, at least for sometime. In the next series, we look getting to next level in these other dimensions.
References
- Burlingham, Bo, Small Giants: Companies That Choose to Be Great Instead of Big, Penguin, 2005
- Osterwalder, A. et al, Business Model Generation, John Wile & Son, 2010