A common phrase used today in marketing circles is “sustainable competitive advantage” (often abbreviated as SCA). Michael Porter, lauded Professor of Harvard University, coined the term in the eighties and it lives on as an iconic business term. In fact, it has become a cliche, since its usage often is mangled and misapplied.
SCA is a description of what is unique about your offering that makes you valued in the marketplace. A competitive advantage is sustainable if others can’t copy or deliver the same thing, or if the cost or the time to develop a competing solution is very significant. Porter suggests that a competitive advantage is achieved when you do different things that are valued by your customer and are not available from the competition. Alternatively, you can create a competitive advantage by doing things differently, which are valued by the customer and are not available from the competition.
For example, Apple created the iPod, which allowed the consumer to inexpensively download music on a mobile device. We can debate whether they were first (they were not), and whether this advantage is sustainable (not really), but Apple did energize the MP3 movement for the mass consumption market. This is an example of doing something different.
On the other hand, Starbucks sells coffee, which is not exactly a new product, but Starbucks markets coffee in a different way than others have. They market “premium coffee”, although some might argue that point. Moreover, they charge a premium for this difference. Thus, Starbucks is an example of how you can achieve a competitive advantage by doing something differently.
In some industries, being first allows for a competitive advantage, but seldom is it sustainable in the long run. Invariably the word gets out and the competition joins the market erasing whatever advantage there was for the first entry. Apple was enormously innovative with their early personal computers which offered a graphical user interface and a mouse. IBM later entered the market and grabbed market share; all Apple could do was watch.
I have found that specialization in a niche for a business helps ensure the sustainability of the competitive advantage. This specialization is achieved by having expert knowledge of the target market; by fully understanding the wants and needs of the customer, your offering is better than the other competitors. This can be true if your product is different or you do things differently. A wise man once said, “Only dead fish swim with the current”; for a niche business, there may be nothing more important than being different or doing things differently. Being the same as your competition is a dead-end street littered with price reductions, canceled orders, and missed sales forecasts.
Not surprisingly, I have witnessed that a tight geographic focus helps create a strong competitive advantage for niche businesses; the sheer constraint on geography allows for excellence and bars competitors from getting a toehold. This goes counter to the thinking of many entrepreneurs who are tempted to stretch their geographical boundaries for additional cash flow.
Participating in a niche market with few competitors helps create sustainable competitive advantage. With fewer competitors, the provider can capture higher margins and profits, which allow the entrepreneur to invest more in the firm.
Of course, brilliant designs that are patented can provide competitive advantages, but in our global economy, patents are increasingly difficult to defend. Talk to someone who competes with Asian firms in a global market and you will find that good ideas or products are quickly cloned. Catch them if you can.
John Bradley Jackson
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