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A competitive advantage doesn’t need to be huge to have an effect. It doesn’t have to be mind blowing or ridiculously obvious. It only has to be useable by you.
Giving discounts on products — when your competitor ignores Black Friday — is a competitive advantage. Targeting niche audiences is a competitive advantage. Treating repeat customers with VIP discounts is a competitive advantage.
You see what I mean.
Research is key. And knowing where to look for advantage makes it that much easier to find. With a budding business idea, you should start with the five forces analysis.
Competitive advantage with Michael Porter
Michael Porter created Five Forces Analysis — a method to find advantages in five key sectors. It’s a fantastic analysis for developing a brand new business or product in a specific industry.
Basically, you examine these 5 criteria.
1. Supplier power
Suppliers can stronghold you. If you only have one supplier who can give you materials, they can raise these prices whenever. The fewer suppliers available, the more power they hold over you.
How to use this to your advantage: Make a list of every potential supplier available. Contact them to find their rates. And if a supplier disappears or emerges, write how it affects your business.
2. Buyer power
Buyers are your customers. They either buy your product or they drive over to your competitor. If competitors are doing what you do, the buyer holds the power. You may need to lower prices or offer stronger discounts to keep their loyalty. But if your product is niche, you can set prices how you want; you’re the buyer’s only choice after all.
How to use this to your advantage: Create a buyer persona. Examine how many people need your product (search online in forums, ask customers directly, and look at competitors social media). Examine the cost to gain new customers and to retain customers.
3. Threat of substitution
Buyers may find a substitute — that’s bad for business. Competitors make this happen. It makes it much harder to reacquire lost customers. So, you’d need to put more effort into retaining current customers or acquiring new ones.
How to use this to your advantage: Examine what substitutes your customers have if they don’t want your product. Whether it’s by their own hands or from a competitor. If you can identify this, you can use it to better your product.
4. New rivals
Businesses can emerge and take customers by utilizing their own advantages. If you’re niche, it can difficult for this to happen but still possible.
How to use this to your advantage: Show how easy it is for a competitor to come into your industry. See what they offer. Then see what can you do to prevent the rivals from hurting the success of your company.
5. Competitive rivalry
If many competitors exist, you’re really going to have to compete for customers’ time and money. If you offer something your competitor can’t do, you’ve got the advantage they’d kill for. If don’t have competitors, you’ve little to worry about.
How to use to your advantage: Competitor analysis for existing competitors will help. You need to study them to know what they offer, how they offer it, and why it may appeal to your customers. This gives you the advantage to use this information for yourself.
You can use other analysis to find your competitive advantage. The simplest is with SWOT analysis.
How SWOT analysis gives you a competitive advantage
SWOT analysis looks at four criteria: strengths, weaknesses, opportunities, and threats. You can apply SWOT analysis to your own business or your competitor. The point is to examine how to use the good and the bad as a competitive advantage.
Strengths: These are what the business does well. It can be developing a social media following. Giving incentives to long-time customers. The branding of their company website. Or outreach programs. Essentially, what’s bringing in customers, profits, and sales?
Weaknesses: What is not working? Are people complaining about shipping rates? Are new customers coming in but leaving just as quickly? Are employees losing morale and by accounts, sales? You’ve got to take a hard look at yourself or the competition and see where they’re lacking. Because where you lack is where the competitor comes in to shine.
Opportunities: What advantages can be capitalized on? Opportunities may appear in the form of collaborations or new suppliers. Difficult to see at the moment but easy to use when looking for it.
Threats: This can be buyer power, or rivals, or substitution as mentioned in Porter’s Five Forces analysis. It’s anything that threatens to slow down or limit your business. When you look at threats competitors are facing, you can use their pain points to your advantage.
Additionally, you can use PEST analysis to show how external factors give you an advantage.
How PEST analysis gives a competitive advantage
PEST analysis is a bit different. You’re examining the entire business and which external factors affect businesses. Specifically, you examine political, economic, social and technological factors.
This can get quite lengthy. The factors which affect business can go on and on, depending which of the four you’re examining.
Political looks at governing laws and regulations. Economics are everything from buying power, to taxes and inflation rates. Social is the buying habits or cultural habits of consumers. And technology can be manufacturing to data breaches and everything in between.
But the advantages rely on the information you find. You may learn a competitor is losing profits because of high taxes and interest rates. Or that the customers are suffering because they don’t have the technology necessary to receive shipped items in their rural towns.
Competitive advantage is available everywhere. Using analysis helps direct your attention and find which advantages you can exploit for success.