THE ONE REASON THAT CAN MAKE YOU SUCCESSFUL
John Francis “Jack” Welch, born in 1935 is a well known American business executive. He was chairman and CEO of General Electric (GE) for 20 years between 1981 and 2001. During his tenure at GE, the company’s value rose 4000%! Yes, 4000%.
What made him and GE so successful : “If you don’t have a competitive advantage, don’t compete!”
Being different and not just having differences
Understanding what gives you a competitive advantage in the marketplace is important for every business. You need first to understand what is your unique competitive advantage, then continuously communicate it to both, first your teams, making it as part of their own DNA and then second to your customers, existing and future.
A competitive advantage can be defined in terms of having superiority. Yes, but where?
Apple clearly had, yes, had, a competitive advantage in bringing innovative products to market. But today, Samsung has number 1 position in global market shares. Because people thing today with Samsung devices, they get much more value for the price they paid. This value relates to the satisfaction the customer receives from purchasing the product. This clearly demonstrates from 2 perspectives that a business will achieve market differentiation only if its product or service offers to the customer a benefit greater than its cost. At launch, IPhone 6 records already 5+ millions preorders and is already considered as a success, when Samsung will still grow its market share , and profitability in that segment, and be undisputed number 1.
Do your job : Competitive Analysis
OK, but what do we call “my/our competitive advantage“. Understanding as much as possible about the competition helps you define your position in the marketplace. When you determine how to enter the market with your product or service, you’ll want to feel confident about how you will differentiate your business from competitors. That’s it. It is NOT about your differences, but HOW you’re different.
Start by conducting in-depth market research. You will identify your real or potential competitors that may be threats to your business’s success. Now, you deeply analyze these competitors’ strengths and weaknesses, and determine how you can compete against them effectively. And build your competitive advantage.
Where do I place my Competitive advantage
In any industry, businesses can develop a competitive advantage through price or themarket.
- A price or cost advantage could be tied directly to production costs, improved efficiency, or available technology. You will need to pay close attention to your past, but essentially your future and forecast P&L. And that’s where, and also, you realize that your price advantage could also be a strategic decision, to cut the oxygen off your competitors.
- A competitive advantage in the market requires you to develop market differentiation. This is where your business sets you apart from the competitors in your industry. Be creative, this is key, when you look at this aspect. Exhibit distinctive characteristics that separate you from your competition.
Do my customers/prospects value my differentiator?
If your business can offer superior service, quality, or benefits to the customer that your competition does not provide, you have developed market differentiation. That’s your unique competitive advantage that separates you from others in your market. Your product or service may have special features that appeal to customers and help them decide to buy it for reasons other than price. As a result, your business may be able to sell more units or charge a premium price. Customers may also be more loyal because they value the service, quality, or perceived benefits. This is particularly true in my industry, the medical devices and services.
Here are some key components where you can achieve competitive advantage. You may not need to include all of those means. One could be enough, but clearly need to set you apart from others. They will help you positioning yourself in the Premium segment with a Premium price
Perceived quality: The perceived quality of the product is so superior to competitors’ products that the customer will pay more money for it.
Customer service: The treatment the customer receives from the business is more important to them than the price.
Benefits: The customer perceives greater benefits from the product and, therefore, will pay more to purchase it.
Brand equity: The business has established a brand that people trust or that indicates a quality product or service.
Niche focus – The business chooses to serve a niche, a narrow portion of the market, where the customers have special needs or preferences that do not appeal to the broad market.
As an example, Sorin Group, by positioning its latest Heart-Lung machine as delivering reliability, quality and functionality along with most advanced safety features embedded in the equipment, was just securing its already number one position in that business, achieving 4 (the 4 firsts) out of the 5 means listed above. But, by including Sorin HeartLink™, a unique interconnected perfusion system allowing the integration with the other perfusion devices, just checked the box for the number 5, and won new customers from its competitors. At this time, no other company filled this need for such integration, so Sorin is able to charge a premium price and hospitals/surgeons who see this interconnection as a need (it will be in the next 3 years) gladly pay for it today.
What Is Price Perception?
A business can sometimes benefit from downplaying the value of high-end products instead of treating expensive items as though they are special.
Selling at a loss can often force weaker competitors to lower their prices and drive them out of business. It’s called ‘cutting off the oxygen’ in some strategic circles. Loss-leading strategies deliberately make losses to gain market share to block competitors, occupy a market gap, sell related products. But this may also bring you a real competitive advantage : while you will increase your “units” market share, you may improve and have a more efficient production and operation, hence lowering your overheads. I know 2 larges companies in the pacemaker business that sell at loss huge volumes in some countries to secure their shares in other markets.
You can also create a competitive advantage when you offer a similar product or service and benefits to customers at a lower price than other businesses. This is well known and successful in the pharmaceutical industry with the so called “generic” drugs.
As an example TEVA, the global leader in generic pharmaceuticals, with 2013 sales over $10 billion growing at a mere 20% yoy, built upon two unique competitive advantages : helping worldwide health care systems in their quest for reducing their costs by supplying them with generic medicines and second, passing on the cost savings (generic drugs) to the customer in the price.
Be aware, however, that many new businesses cannot compete solely on price because a strong competitor can copy methods and regain the advantage. Large, established product-based competitors are often better at being low-cost providers because they buy items in bulk. Remember the example of the 2 pacemaker companies.
Finally, your business may invest in innovation and strives to develop a better product or service at a similar or lower price. Innovation may help improve technology as well as productivity and, therefore, affects the price to customers.
My Competitive advantage
Your new business will have many of the characteristics listed above. Pick the one upon which you will base your competitive advantage. You will use this one element in your marketing materials to separate you from your closest competitors. Compete then on Market Differentiation or compete on Price. Or both, but compete. Develop and explain your teams and your customers precisely how you see your competitive advantage in the area you have identified. What specifically is different about your product/service in that area? And more important, this your key to success : what is that makes your different.
You do not do business in a vacuum. While you focus on your competitive advantage and sharpen your business’s response to critical success factors, your competition is probably doing the same. Learn how your competitors behaves : this information is your competitive profile.
Every competitor has strengths and weaknesses. Study them. Your competitors’ weaknesses may become your competitive advantage. As an example, many larger competitors are not able to make rapid decisions, allocate resources, and respond to changing market needs as quickly as smaller ones. Because of this weakness, smaller companies can often gain market advantage until larger companies respond.
Once you have discovered what advantages are important to your target market, you can build on and promote a competitive advantage the market values and your competition does not deliver. And be successful. To be effective, competitive advantages must be positive for the customer and simple to articulate. And must start from within your company.
And to conclude, let me quote Albert Einstein : “If you can’t explain it simply, you don’t understand it well enough.”
MedDev Solutions (www.meddevsolutions.com) is committed to helping you building this unique competitive advantage, looking at your medical devices business and turning around, making you more successful.
Owner and principal consultant
Inspired form a paper from FastTrack NewVentures Program (Kaufman Foundation)
Sources : Ewing Marion Kauffman Foundation, HBR Network blog