Traditional strategies for achieving a competitive advantage were developed in a time when the expectation was that a market position could be relied on in a relatively stable market environment. Today markets are affected by an increasing rate of change, from extreme shifts in political-economic alliances, to a whole raft of new technologies, to changes in customer attitudes to brands. Do those traditional strategies still hold true? Yes, with a nuanced and fluid approach.
In essence, they do. As the fundamental building blocks of competitive advantage they haven’t changed but a business’ approach to implementing them needs to be both more nuanced and more fluid. Picking one approach to a strategy and sticking to it come what may is unlikely to give you a sustainable competitive advantage as more flexible competitors overtake you.
This competitive strategy is simply that of being the cheapest in the market. Many small business owners will argue that their customers are very price conscious and that selling at a cheap price is their only option. They might well be right about price consciousness but they need to think about how sustainable this approach is. Are the profit margins able to support the business in the long term? What happens – as it often does – when competitors follow suit, cut their prices and everyone becomes part of a race to the bottom that is not sustainable for anyone? Only one business can be the winner – or, in reality, the loser – of this race.
By focusing on a low price, they end up focusing on the price conscious potentially to the exclusion of others who would pay more for the confidence in quality that a higher price can command.
Can you make cost leadership strategy work for you? Perhaps.
If your business model can support a cost leadership approach whilst maintaining a healthy level of profit can be a good one but it might need a radical re-think of how you do business. A Blue Ocean strategy is one where you leave your competitors to fight it out (turning their part of the ocean red!) and find an uncontested stretch to swim in. Whilst not necessarily designed in order to lower the price you charge, it does focus on eliminating or reducing the elements of a typical offering in your sector that customers place little value on in order to reduce costs.
Complementing this by creating new value for them (ideally in ways that can be implemented efficiently) can enable you to charge that lower price without undermining perceptions of quality. Which leads us to…
A strategy of differentiation is one where your business does something that your customer values better than the competition. It might be that you have a substantially different product or service that cannot be replicated; if you can protect the intellectual property on it, so much the better.
But, increasingly, differentiation is found in other elements of your marketing mix, in your customer service ethos, in your brand, in the status customers seek from using your product or service, or in the culture of your business. Things that require a deeper understanding of your customers and their motivations and a willingness to be adaptable in how you meet these needs.
What does this mean in a changing market?
A better understanding of what your customers really value about what you provide allows you to develop underlying principles in how you deliver that and to apply them consistently across all your touchpoints with them and across every communication channel you use. That way, even as market trends change you can maintain pace with them whilst still staying true to your customers and your brand.
For instance, a common mistake that even big brands can make is to disregard social media channels for providing customer service even though that might be where disgruntled customer let off most steam. Even if that service is excellent by phone or email, neglecting alternative channels will undermine that hard work and mean that you fail to differentiate yourself fully. Think about those underlying principles, the real values of your brand that are really valued by your customers. When they are strong you can be as flexible as your market requires without breaking them.
A focus strategy means specialising in a niche segment of your market, perhaps one that larger competitors would consider too small to bother with but which makes an ideal market for a passionate and knowledgeable small business owner.
Following this strategy, pretty much by definition, means understanding that niche inside out which should make you ideally placed to keep on top of – if not ahead of – the trends in customer behaviour and the wider marketing environment.
It’s an approach that plays to the strengths that a small business should have: a real enthusiasm for their product and niche, the ability to make their own decisions quickly to respond to change, and the ability to test and monitor marketing activities without a huge need for resources before committing further.