From chariot races and jousting tournaments to playground games and professional sports, competition is an age-old force that drives humans to evolve and outpace their competitors.
Competition in business is no exception, and it can make or break your organization. While it's often uncomfortable and scary to witness another business profit from your company's weaknesses, competition can also push your business to evolve into a better version of itself.
How do you gain an edge to drive growth for your organization? Here are five sources of competitive advantage to leverage for your business strategy.
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Sources of Competitive Advantage
1. Product Attribute Differentiation
One way to gain an advantage over competitors is by differentiating your product from theirs. Ask yourself: What makes my offering unique? Why would consumers want to purchase my product instead of my competitors’?
Countless attributes can set your product apart. Here are some to consider:
Better customer service
More variety
Faster or cheaper shipping
Location
Color and aesthetics
Brand identity
Atmosphere of brick-and-mortar locations
Source of goods
Whole Foods Market is one example of a company that differentiates its products using brand identity, atmosphere, and sourcing. Whole Foods’ competitors are other natural food chains, such as Trader Joe’s and Sprouts Farmers Market, along with big names in the grocery space, including Stop & Shop and Wegman’s.
Whole Foods stands out in the crowded natural foods market as the first and only certified organic national grocery store in the United States. Its brand identity centers on the integrity of its natural and organically sourced foods. It also cultivates an in-store atmosphere that makes grocery shopping feel purposeful and is a step up from some of its competitors' traditional grab-and-go shopping experience.
Like Whole Foods, find the attributes that differentiate your product from others and make them central to your brand’s identity.
2. Customers’ Willingness to Pay
The way you price your products or services can set you apart from your competitors. When doing so, it’s vital to understand your customers’ willingness to pay.
Willingness to pay (WTP) is the maximum price a customer is willing to pay for a product or service. It can be a specific dollar amount or a price range.
By determining your customers’ WTP, you can ensure you’re maximizing profit without turning away customers.
In the context of competition, it’s important to view willingness to pay as a strategic tool. If your customers are willing to pay the same amount for your and your competitors’ products, consider what can be shifted to increase their willingness to pay for yours.
For example, business support system company CSG reports that 47 percent of consumers are willing to pay more for products that are sustainably sourced. Among those consumers, five percent are willing to pay double the price for a sustainable product over a non-sustainable one.
With the knowledge that certain factors could cause your customers’ willingness to pay to increase, you can strategically implement changes that give your business a competitive edge.
Alternatively, if your competitor provides a product at the very top of customers’ willingness to pay, you can gain a competitive advantage by offering a lower price. Tread cautiously, because doing so could start a price war in which you both continue to drop prices to win customers.
3. Price Discrimination
With an understanding of your customers’ willingness to pay, you may find that different types of customers are willing to pay different amounts for your products. In such cases, it can be useful to employ price discrimination, which can be a valuable tool for expanding your company’s reach when competing with others.
It’s worth noting that a lower price doesn’t always win consumers over—selecting a strategic price is crucial, but it’s just one factor they consider when determining which product to buy.
4. Bundled Pricing
Another pricing strategy that can prove to be advantageous is bundled pricing.
Bundled pricing is the practice of selling two or more products together in a “bundle,” for which the cost is different than that of purchasing all of the items separately.
Cable companies often leverage bundling. Purchasing voice, video, and data services together often grants the customer a lower price than if they were to purchase the services individually.
The way you price your products should be strategic, purposeful, and give your business a leg up over its competitors.
5. Human Capital
A company is only as strong as its people. As such, hiring, training, and retaining a team of skilled employees is a competitive advantage for any business.
Putting in the time and care to select outstanding candidates for open positions, train current employees, offer professional development opportunities, and create a culture wherein people feel supported and challenged can pay off.
Gallup reports that business units with highly engaged employees see a 21 percent increase in profit over their less-engaged counterparts.
Employee engagement became especially important following the COVID-19 pandemic, as many businesses closed physical offices and transitioned to remote work. By finding ways to effectively engage your team in a virtual setting, you can make them feel supported and empowered from afar.
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Positioning Your Business for Success
Differentiating your product, creating a pricing strategy, and investing in your employees can be the difference between rising to the top of your market and being driven out by a competitor.
By taking a strategy course, such as Business Strategy, you can bolster your skills in these areas and see competition not as a looming threat, but as a catalyst for growth.
Do you want to learn more about positioning your business for success in a competitive market? Explore Business Strategy, which can be taken individually or as part of our multi-course Core Business Essentials credential program. Download our free brochure to learn more about the program.