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In business terms, competitive advantage consists of a unique set of values or qualities that the company has that help it differentiate itself from its competition. It’s the reason why many customers would choose your products over the competition.

There are a number of concepts – clichés – that many companies often cite as competitive advantages. Among them are: price, quality, technology, design, service, speed of delivery, experience, customization…

The term was coined in the world of business strategy by Michael Porter in 1984. According to him, “a company can be considered to have competitive advantages if its profitability is above the average profitability of the industrial sector in which it operates”.

For his part, Philip Kotler, the father of modern marketing, defined competitive advantage as “the ability of a company to act in one or more ways that competitors are unable or unwilling to match.”

The problem is that few individual value propositions are defensible as a competitive advantage. And even if they are defensible in the moment, they are rarely sustainable over time. For this reason, Warren Buffet, one of the world’s largest investors, said that he evaluated a company by its “sustained competitive advantage.” To include the term “sustained” here is to add to that advantage the fact that competitors fail to improve it over time.

But how do you sustain a strategy that has bet on price when a competitor appears offering the same product at a lower cost? Lower prices? It is clear that price as a competitive advantage quickly becomes a bottomless pit and, as such, is not a sustainable competitive advantage.

Or what about speed of delivery? If Amazon invests billions to offer free one-day shipping, could any company that doesn’t sell through Amazon claim to offer faster free delivery than the world’s largest delivery company? The obvious answer is: no.

The problem isn’t just with price or delivery. The difficulty with choosing any individual value proposition as a competitive advantage is that there will always be the possibility that someone from the competition will come along with a superior advantage. As a result, individual value propositions are hardly sustainable competitive advantages.

Competitive advantage must find value propositions that are more appropriable and lasting over time. For example, they could be: a unique geographical location, highly skilled and specialized labor, exclusive access to patented technology, brand image recognition…

It’s important to note that having a competitive advantage doesn’t necessarily mean always being the best, it just implies that there must be something that customers identify as better, whether consciously or unconsciously, and that motivates them to prefer your product over those of your competition.

Identify Competitive Advantage

Before you can establish a competitive advantage, it’s important to dig deeper into these 3 aspects:

  1. Benefit: A company must be clear about what benefit(s) its product or service brings. It must offer real value to generate interest.
  2. Target Market: There is no advantage without an understanding of the market and customers, so that the offer adapts to the demand.
  3. Competitors: In terms of advantage translating into competition, you need to have a good understanding of the competitive landscape.

So far it seems easy, but the reality is not so easy. So it’s worth noting that, if you don’t have an exclusive location, if your teams are as professional as those of the competition, if investments in R+D do not reach a clear differentiation… So, you’re left with an inimitable variable: the brand. Building a solid brand can be the solution to achieve a competitive, differential, sustainable and desired advantage. And I’m not talking about logos, I’m talking about meanings.

Take, for example, the automotive market. Many have opted for values such as security, technology or price. All of them functional. However, BMW has managed to achieve an important competitive advantage, which gives it a differential positioning within the Premium vehicle sector, simply by placing the brand at the center of everything. BMW’s real value lies in its own brand, transcending functional aspects to a differential emotional value proposition.

But maintaining a brand-based competitive advantage over time isn’t easy either. As an example, we have been able to see how Estrella Damm has been able to give a twist to its “Mediterraneanly”, initially focused on summer and party, towards another much broader direction that moves it to a particular way of understanding life that opened the door to culture and now to sustainability. All under the same concept, thus reinforcing its value proposition.

We can see that having a competitive advantage means not resting on your laurels, whether you achieve it functionally or emotionally. Stagnation is the first symptom of the loss of that advantage. Let’s look at the case of eBay, in its origin it was a complete revolution in the market-places business. It got its edge from opportunity, its simple software, its Pay-Pal payment system, and its sorting methods. Despite this, the Company’s profits stagnated and even declined in recent years. Which means their competitive advantage also followed the same cadence. Perhaps in 2020 they may have turned a corner, and according to their CEO, Jamie Iannone, that has been due to a lack of competing retailers and their top picks when it comes to certain products. All this added to the pandemic context of the last year. This recent shift would not be a sustainable competitive advantage either, leaving the brand (and its reputation) all the weight of gaining preference.

As we can see, in a market as changing as the current one, there are no competitive advantages that can be maintained for a long time. Perhaps the only long-term competitive advantage is for a company to be alert and agile enough to always be able to find an advantage no matter what. On this path, the brand is the best ally.

 

Carlos Puig Falcó
CEO of Branward

Photos: Shutterstock