by Terra L. Fletcher

Created on: April 18, 2010

“Competitive Advantage” is defined by the APICS Dictionary as: “The advantage a company has over its rivals in attracting customers and defending against competitors.  Sources of the advantage include characteristics such as a manufacturing technique, brand name, human skill set, etc., that a competitor cannot duplicate without substantial cost and risk.”

Michael Porter outlines four generic areas that a competitive advantage may come from.  Differentiation and cost leadership strategies seek competitive advantage in wide market or industry ranges.  Differentiation strategies and cost focus strategies are used in a narrow market or industry.

The differentiation strategy of a business is a predetermined set of actions designed to produce and deliver goods or services to customers who perceive the company’s offering as different.  Not just different, but different in a way that is important to the customer.  This means meeting your customer’s unique needs with nonstandard products in a way that gives your company a competitive advantage.

With hyper-competition in a global market, being unique and having a strong business differentiation strategy are important.  Any company has two basic ways to compete: either with low prices or with a strong differentiation strategy that allows higher prices.  Because of the global market there will always be someone who can sell your product or service for less.  Differentiation therefore becomes necessary for business survival.

Differentiation strategy involves addressing the point of pain or performance gap felt by buyers in a market.  A wise business owner will meet the criteria and then position the company uniquely to meet the needs of buyers.  These products are often “top of the line” and to reflect increased cost to the company, prices are usually at a premium.  Higher prices are necessary to cover higher production costs and extra, value-added features for the customer.  A company employing a differentiation strategy gives customers a clear reason to choose them.

The key parts of a business differentiation strategy, as outlined by 1000ventures.com, include positioning, trust-building, and awareness.  The first element of the strategy is the idea that makes your business different.  The next challenge is explaining why you can deliver what you promise.  Many companies find it helpful to include testimonials and credentials.  The third step, awareness, must be considered in all marketing campaigns.  Are you saying the same thing as everyone else?  Or are you letting everyone know that you’re a little different?

"Don't forget that it (your product or service) is not differentiated until the customer understands the difference."  – Tom Peters

When you have the ability to view your business and competition from an objective viewpoint, the differentiation necessary to separate yourself and your product or service becomes clear.  First, determine precisely what your current positioning is and how you could improve.  Then, determine your exact advantage.  How can you improve your difference and separate yourself further from the competition?  How can you better convey that difference?  A strong business differentiation strategy is fundamental to a successful business.

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