The Secrets to Lasting Competitive Advantage

By Paul Johnson
Posted Saturday, February 5, 2005

In my continual quest to create new sources of revenue, I must admit, I’m lazy. Or maybe efficient or effective are better words. That is, I’m looking for ways to do these three things:

• Attract new customers • Keep the customers I have and sell them more • Grow profits

And I want to do all that without having to work harder and harder, faster and faster. Call it efficient, effective – or lazy.

A little consideration and planning regarding how competitive advantages can be built into your offerings will allow you to grow revenue and profits with ease. As your company grows and you become a target for competitors, you’ll be able to stave off their attacks on your customer base and protect your margins. You’ll be able to really enjoy the fruits of the market you’ve carved out for yourself.

Usually business doesn’t work that way. The marketplace is tough. An entrepreneur struggles and sacrifices to create a business and one days discovers that they’ve made it. The business is growing and making a profit. Prospective customers understand the value of the Company’s offerings, and more flock to the Company every day. Life is good. More employees are added, and customers are alerted that the Company is moving to a larger facility.

Someone else is alerted, too – the Competition. As soon as the Company has figured out how to serve a market and make a profit, the Competition is right there ready to fight over customers and erode profits. Perhaps their offer leapfrogs the Company’s offering by including more features or new technology. Perhaps they find a way to provide the same offering for less cost. Soon the Company’s unique and valued offering is reduced to commodity status, and business isn’t as much fun as it used to be.

We’ve all faced these conditions before, and we know that having our own competitive advantage will allow us to win our share of new business and keep the customers we have. But how can we do it better, faster, and cheaper than our competitors? What can we do to be the victor in our war with competition? We can win day in and day out if we have a lasting competitive advantage that includes four components: Price, Features, Locks, and Links. Let's proceed with an overview of how these four components interrelate.

Price Isn’t it always amazing how fast a prospective customer jumps right to, “How much is it?” If they’re at all interested in what you offer, they want to know “How much?” This is their first measure of Value. The prospect quickly compares the cost of their discomfort, or problem, with the Price of your solution. For discussions with you to continue, the prospective customer must believe that the best investment right now for their money is in your solution. And they know that they also have the options of doing nothing, selecting a competing solution, or spending their money on fixing a different problem. If the prospect is still interested, you’ve passed the first hurdle. That means that your Price only needs to be in the ballpark of your target customer for it to be a competitive advantage for you. You don’t have to have the lowest Price.

Features The next component of your Competitive Advantage is Features. First of all, let’s define Features; I’m referring to all the nuances of your offering that matter to your prospective customer. It might be knobs and lights, it might be a list of capabilities, or color, or the support services you offer. Remember, if it doesn’t matter to your customer, it doesn’t count as a Feature. Features help your prospect determine how well your offering will satisfy their need for a solution.

Often Features and Price are used together to determine the relative value of an offering when compared to the competition. More features for the same price means more Value. The relationship looks like this:

Features are usually where we focus our efforts to create a competitive advantage. We try to listen to our customers and be first to market with the Features that customers in our target market really want. We work feverishly to improve and enhance our product to stay one step ahead of the competition. We run focus groups and have meetings to find ways to add value. This is certainly no place for the lazy!

Yet despite all our efforts and round-the-clock labor, our competitors do catch up, our margins erode, and the cost to gain a new customer amid all the clutter of the marketplace goes up. The message: we can’t build a lasting competitive advantage with Features. We have to have the third component, Locks.

Locks Locks give us tools to keep a customer once we win them. Once a prospect becomes a customer, our company can be proactive to make sure that the customer stays.

Sometimes a Lock is as simple as a contractual commitment, like the way leasing a car provides a Lock for the car manufacturer. While this Lock provides little Value to the customer, many Locks are a bit more benevolent, like instituting a Customer Loyalty program to make sure that customer expectations are consistently met. Even if these customers aren’t contractually committed and could leave for a competitor, they won’t and don’t.

Locks provide your competitive advantage strategy with Sustainability, like this:

Sustainability means that minor shifts in the market or the latest and greatest attack from your competitor won’t cause your customer base to defect. Sure, you still have to offer a good value, and you’ll have to invest in R&D to win new customers. But now your customers become an asset to be mined instead of a liability to be managed.

While Locks do provide Sustainability, they usually don’t provide much Value from the customer’s perspective. In fact, most prospects don’t even recognize Locks exists until after they’ve become a customer and are motivated to think about leaving. Then they realize that defecting is a bad idea. Until that moment, Locks are transparent to them and a big asset for you.

As a competitive advantage, Locks are an important tool to help you retain your customer base so you can grow. But it doesn’t help you add new business more efficiently or effectively. To accelerate your sales results and dominate your competition, you need to add the Links component.

Links I define Links as beneficial conditions that result from expansion of your company’s reach. It’s the value associated to your “connectedness.” For example, the links you have to your customers are valuable to your own company, and the more customers you have, the more your company is worth. More important than this is the Value that your Links provide to your customer. Look for ways to use your company’s reach and “connectedness” to improve life for your customer.

You could compare transaction data from a specific customer to transactions aggregated from all your customers, then present that information in a helpful way to the customer. For example, when you select a book title from Amazon.com, they will alert you to other titles that have been frequently purchased at the same time by other customers.

More powerful still would be the ability to alert the customer to problems in their business based on unusual transaction patterns. For example, a provider of commercial paint supplies was alerted that a particular customer was buying proportionally much more of an expensive paint additive than their other customers were using. After consulting with the customer, the provider discovered that the customer was misapplying the product. After a brief retraining session, the customer had solved a frustrating and expensive problem, and the provider had a happy and committed customer. This could never have happened if the provider hadn’t taken advantage of its links to all customers for the benefit of the single customer.

Internet “Portal” sites like Yahoo! and eBay also provide value through their Links. They’ve made it easy for people to access an Internet community by starting at their Portal site. A Portal site makes it convenient for their customers to connect to the many related resources that Portal has brought together.

What’s significant about the Links component is that size matters to you and your customers. Not the size of your company, but the size, or quantity, of your Links. Prospective customers become more attracted to your company as the size of your Links grow. This means that the Links component adds value and is sustainable at the same time. Sales become easier, profits are sustainable, and competitors are shut out.

As an example, Adobe Systems has been giving away its Acrobat Reader software to end-users over the years until now there are tens of millions of registered users. Anyone who needs to distribute documents electronically will be compelled to purchase the Acrobat “writer” software from Adobe since there is already a large population of consumers out there with the software to view the documents created with it.

If you want to get started using Links as a Competitive Advantage, put together a User’s Group for customers of your offering. Merely allowing customers with some common bond (they’re your customers) to get together can be seen as a source of great value. These customers will often learn more from each other at these sessions than they will from your company. And you get the credit!

Conclusion Get started today and improve your competitive advantage. Actively seek out those sustainable advantages that Locks and Links will give you. Some of your ideas may take a while to implement, but don’t be discouraged – they’re worth it over the long haul. And by jumping in on those short term Links strategies – like Users Groups – you can create sustainable value for your current customers that will also help you win new customers.

Put these concepts to work, and you’ll be able to more easily win new business, protect margins, grow profits, and lower customer acquisition costs. Your customer defection rate will drop, and your current customers will become more profitable for you. Your customer retention and creation activities will become more effective and efficient – and you’ll never have to admit to being lazy.

About the Author
Paul Johnson of Panache and Systems LLC consults and speaks on business strategy for winning against bigger, stronger, better-financed competitors. Check out more free business building tips at (http://panache-yes.com/tips.html). Call Paul direct in Atlanta, Georgia, USA at (770) 271-7719.