There is a long running discussion regarding sustainable competitive advantage. In particular, is a sustainable competitive advantage in today’s world of mass communication, electronics and AI even possible?
Decades ago we were taught that you must have a sustainable competitive advantage to succeed. Books like In Search of Excellence, Good to Great and Built to Last, sought to uncover the magic elixir of how advantages are created and sustained.
Today, only a handful of the companies mentioned in these books can tout performances that would rank them as being great. A number have failed and remain in our memories more as examples of what not to do (Kmart, Circuit City, Pitney Bowes).
Yet, all were presumed to have some level of sustainable competitive advantage, be it an internal leadership team and culture or a unique product or delivery system.
Even the once sustainable advantage of genius product innovation is short-lived. Harvard Business Review reported 15 years ago that “Competitors secure detailed information on 70% of all new products within a year of their development. Patenting usually fails to deter imitation. On average, imitation costs a third less than innovation and is a third quicker.”
Imagine what that percentage is today!
At one time the big box players appeared to have a sustainable competitive advantage but even that environment has changed dramatically.
When they first appeared on the scene there was no Amazon. Big box large volume, lost cost offers are no longer the sustainable competitive advantage they once were because now the big players of Costco, B. J.’s, Walmart, and Target cannot sustain a low-cost competitive advantage vis a vis Amazon and now countless other online competitors like Zappos, Chewy, Wayfair, Overstock and so on.
Sustainable Competitive Advantage, Or not?
Coca Cola :
For many decades, Coca Cola was thought to have the biggest sustainable competitive advantage in the world with their secret, incredibly special formula, but they have gotten beat up by scores of competitors.
Yes, they do have that “secret formula” and so far that has been relatively sustainable. Lawsuits abound for imitations and leaking of the recipe. Branding wars have made the recipe less valuable over time.
And more recently health information about the dangers of sugary drinks and artificial sweeteners has dented that “sustainable advantage.”
Loyalty Programs as a Sustainable Competitive Advantage
At one time loyalty programs promised to be sustainable competitive advantages, specifically travel companies like Delta and Marriott hotels. Whether you like Delta or not, once you have accumulated “status” you are hooked, so their relationship with the traveler is somewhat sustainable.
Till it isn’t.
Airlines today have limited competitive advantages; they have turned themselves into commodities with so few exceptions.
Has that happened in your industry?
How do you stand out?
The real question is not “do you have a sustainable competitive advantage? But rather “do you have any competitive advantage at all?”
Competitive Advantage or commodity?
Competition is healthy for any industry. It generally raises the bar for all who serve in it.
Too many companies rely on lower prices, brand, and big investments in marketing and advertising, and/or various price-based promotions. This pushes companies into a commodity corner.
In our study at Smart Advantage of over 350 companies, more than 80% do not measure, support, or promote the things most valued by customers. If they did, they would rely less on lower prices, and do a better job of communicating their value.
Bed Bath and Beyond commoditized
The worst state of all is to exist in an industry where you have trained the customer to act only when a lower price is offered. For example, Bed Bath & Beyond has been trying for years to free itself from reliance upon coupons to bring customers through their doors.
Unfortunately, a short-lived attempt at eliminating coupons resulted in uninspired sales numbers, and coupons were reinstated. A store like Bed Bath & Beyond may have great advantages, but those advantages cannot overcome the training they gave their customers for years of the benefits of lower prices in the form of coupons.
They are less an example of sustainable competitive advantage and more of an example of sustainable commoditization.
Competitive Advantage defined from the outside
To get out of this trap, organizations need to do a better job of communicating their value. In order to do this effectively, organizations need to
- take a hard look at their products/services to determine where/how value is provided to their customer. Customer perception of value is what matters, not what the company thinks they “should” value. Competitive advantage is determined from outside the organization, not from within.
- look outside to better understand what value is to their customers.
Yet, shockingly few have a structured, formal approach to do just this. Many may do it once, but even then, if sales are strong, focus begins to shift.
The focus on competitive advantage fades into the background. At some point, market share and margins may begin to diminish.
Those organizations that do consistently ask their customers what is most important to them have the foundation of a sustainable competitive advantage (if they in fact, do listen and act on what they learn).
Save “time” for a competitive advantage
One trend we have witnessed is companies expressing their value in the form of saving a customer time. If the value of time is accelerating,
- how are you monetizing the value of time you save for your customers?
- do customers realize you are not just simply selling a product or service (of which most are commodities anyway), but you have given the gift of time when you find expediency for them?
We are seeing more and more companies/organizations taking on workloads for their customers to build value propositions.
- Grocery stores and restaurants will come to you now. No need to leave the house.
- Many businesses warehouse your inventory until you need it.
- Some provide onsite “live in” technicians/engineers in case the customer needs one ASAP.
- Many have in-house labs they allow their customers to use.
The list is endless.
Turn your labors into Competitive Advantages
In our work, we see constant examples of companies saving their customers time and money, and not effectively taking credit for it. That means, they don’t put an actual value on what was saved for them. Here are some examples:
- Our warehousing of your inventory saved your company an average of $3,500/month.
- Our engineer onsite at your location cut your downtime by 14% and cut your repair costs by $7,500 per line/per year.
Our mantra at Smart Advantage is, ”if you don’t value what you do for the customer they won’t value it either.” Why should they?
Most of us have less and less control over time. Companies that can provide time savings for their customers will be delivering an all-important competitive advantage.
First, they need to recognize the opportunity to do so. Then they need to help solve the time issue for customers, and finally, they must place a value on it. Tell the customer how you have saved them time. Monetize it.
What have you done for them lately?
Many organizations are so busy reeling in new customers they forget that their most important asset is their customer base.
They neglect to tell existing customers how much they have done for them and where they provide cost and time saving measures.
Companies who fail to do this leave their customers prey to the competition every day.
A competitor may dangle a slightly lower price in front of your customer who doesn’t understand the value you bring: poof, they are gone.
Make sure you take stock of the time needs of your customers. Create your own competitive advantage by solving it.
Some companies will gladly pay more to get more time, some may buy more from you.
Components of a Sustainable Competitive Advantage
If you ask 20 people to give you a list of the elements of sustainable competitive advantage, you are likely to get 20 different answers.
I will give you a few to ponder, feel free to argue the issue and/or add your own.
- A culture singularly focused on the customer
- A product/service no one else offers and cannot be easily duplicated
- Access to raw materials others cannot easily obtain
- New systems not easily duplicated
- List yours:
Finding your Sustainable Competitive Advantage
If we take the first two bullets above, you will need to be a company:
- that uses a disciplined research approach to determine the top buying criteria of your customers;
- committed to operationally ensuring those criteria are met at an A++ level; for example, if they must have order accuracy, your team and processes must be developed and sustained to allow for no mistakes
- that tracks, measures, and documents what goes right and goes awry
- maintains accountability of the operations that fill the customers’ top 3 to 5 most valued deliverables.
- who messages consistently and often on how successful you are at those top customer values
What can make a sustainable competitive advantage challenging is that customer values often change. It can be hard to let go of what once was your competitive advantage, but if customer buying priorities change, you have to be willing to change to meet their needs.
It is hard to believe, but just 10 years ago Netflix abandoned the core business model that had led to its remarkable growth as a company (mailing DVDs). When they announced they were moving their service to online streaming, business analysts cried foul. Customers, on the other hand, eventually embraced the change, and Netflix continues to be a dominant player in their industry.
That would not have been the case had they remained loyal to the rental process upon which they were founded. (the Blockbuster error); But they were in touch with the direction their customers were going, and they embraced the change before some innovative start up stole their customers– many of them were ready.
It was extremely gutsy to make that change. What changes do your organizations need to make to be relevant for the next 10 years and differentiate from competitors. The answers may be harder to swallow than you think, but those that undertake the conversations are the ones today who are most likely to have a sustainable competitive advantage in the future.
What Does Sustainable Competitive Advantage Mean
It may be many things that get you there but it means it keeps you out well ahead of the competition, regardless of which of the many components described earlier got you winning by more than just a nose in the race to market share and profitability.
Why is Sustainable Competitive Advantage Important
Sustainable competitive advantage is important if you are to grow and maintain healthy margins. It gets you that lead position but remember, it doesn’t always come from your product, as described above.