Achieving a competitive advantage over other competitors within you chosen industry sector relies upon developing a strategy that will differentiate your business in the minds of the consumer. This differentiation can be targeted at cost/price reduction, quality and product superiority or customer service.
As Michael Porter, one of the foremost academics on the subject of competition and competitive strategy suggests within his various publications, differentiation is one of the most practical ways in which a business can gain advantage over other players in their industry sector. Differentiation can be achieved through the adoption of any number of unique strategies or processes, the most popular of which are discussed in the following sections.
One popular method of differentiation that has been adopted by corporations across a whole range of industries is the “low-cost” model. This model has been amply evidenced in many industry sectors. Two of the most obvious are the supermarket sector and “Low Cost Carrier” sector of the airlines.
The unique element of the “low cost” model is that the whole of the business structure and supply chain is geared towards achieving a low cost base. Taking the airline example as an instance, it is apparent that companies like Ryanair, South West Airlines and others have benefited from the fact that their corporate structure and the resources used are much smaller than national carriers like BA and American Airlines are. This means that they are able to achieve similar margins at a much reduced product cost. Furthermore, the budget airlines have increased their differentiation by promoting a “no-frills” approach to ticket prices.
By reducing elements of customer service, this has enabled flights to be offered at much lower prices by budget airlines than was the case in the past. The combination of these actions has led to the opening up of a completely new consumer market as well as encouraging some travellers to defect from the established and traditional airlines.
Quality and Product
However, differentiation does not have to be cost led. It can also be focused upon quality and choice, with cost and price being a secondary factor. Take for example the fashion industry. In the UK over recent years, this industry has been attacked by the “low-cost” organisation in the form of supermarkets and fashion discount stores. Although low-price competitors have secured a reasonable market share, many of the high quality fashion stores are still thriving. The reason for this is that they have concentrated their efforts on quality and the uniqueness of choice, which appeals to those consumers who do not like the “mass market” approach.
In many respect this “quality and choice” situation can also be referred to as a “niche market” differentiation, where organisations look for areas of the industry where they can compete in a manner that cannot be emulated by the major competitors. In the case of fashion, because the mass-market retailers have built a reputation for low price it would not be easy for them to incorporate a high quality and product range within their existing supply chain processes.
Another differentiation over competitors can be achieved by simply change to or creation of a new product. For example Apple, an organisation that experienced fierce competition within the computer sales market, developed the Ipod. The difference of this product from others within their range gave the corporation a completely new marketplace, which enabled them to create a significant competitive advantage. Other electronic giants, particularly those from Japan, have successfully adopted similar tactics.
Other businesses attempt to differentiate themselves from the competition simply by relying upon the brand image to produce this result. Examples of this in a practical environment can be found with such corporations as Nike, which uses an instantly recognisable tick as its brand symbol, a image that is effective in promotion. However, for a brand to remain distinguishable in the long term it has to represent a level of difference from its competitors in terms of the quality of the product or service being promoted.
One final area of differentiation that is perhaps not so often thought about is that which pertains to service. If a business if offering a similar product within the same price range as other competitors, how can it create a differentiation that will encourage the consumer to prefer their business? The answer is to concentrate upon the creation of a better service experience for the customer. Customers will become loyal if they believe that their demands, expectations and needs are being satisfied by the service provided.
As has been shown, the creation of any area of differentiation that helps your business to stand out or have an advantage over your competitors can be achieved through a number of means. What needs to happen is that the business management need to assess which is most appropriate to their corporation and, equally importantly, which they can sustain for the longer term. For example, there is no point in adopting a low price approach if your business cannot make the margins that will enable to it continue with this strategy because the minute you stop the loss of advantage will cost the business dearly.