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Watering Down Competitive Advantage

Companies are forever in search of a defensible competitive advantage, one that cannot be replicated or substituted. Sounds like a monopoly? Sounds like a terrific way to build shareholder value. And, if done right, to build a sustainable, valuable business.

Strategists at most companies are visionaries, capable of complex thought and analysis that help to identify competitive opportunities. But, companies generally fail in four areas and those failures result in watered down competitive parity.

Failure 1—Not Understanding What is Important to Your Customers

If you don’t understand what is really important to your customers, it is a roll of the dice as to whether or not you are building a competitive advantage. You can be very different from your competitors, but if those differences are in areas that are not important to your customers, well, that makes you different, but not better. Inherent in this is understanding who your customers are and what drives them. When was the last time you saw Ferrari advertising cash rebates?

Failure 2—Overestimating Your Performance

Knowing where and how to invest your resources depends in part of how you perform in areas that are important to your customers. If you overestimate how well you do in a particular area, you might be apt to under-invest causing your customers to see no discernible difference between you and your competitors. In fact, your customers might perceive your competitors to have an advantage over you. It is also a mistake to think that these perceptions are static. Notice that Toyota has been advertising about safety? Those ads are in direct response to the number of safety recalls that inundated Toyota over the past few months.

Failure 3—Underestimating Your Competition

Just as most of us are likely to overestimate our own performance, we are likely to underestimate the performance of our competitors. Remember, it doesn’t really matter what you think, it only matters what your customers and prospects think. Your job is to figure that out. Suddenly, Hyundai is on the luxury car scene. Maybe they were on the radar of the other luxury brands and maybe they weren’t. Either way, underestimating the impact they might have could be costly. And in this economy, their message just might resonate—A luxury sedan for those with money to burn but the good sense not to.

Failure 4—Poor Investing

It’s a simple recipe—invest in areas that are important to your customers and let your competitors invest in areas that are not. Don’t spend foolishly trying to be the best at everything. Identify your target customer profile, understand what is really important to them and be the best at it. Build that reputation and you have built a competitive difference that will be effective. Think Volvo spends more R&D dollars on safety or speed?

How can these failures be avoided? Simple. Bring your customers into your planning. Not literally, but by gathering insights about them and from them to really understand what is important to them, to really understand how well you perform in those areas and how well your competitors perform, and invest accordingly. The recipe is simple—invest in areas critical to your customers. Let others invest in the noncritical areas.

About the Author

Phil Bounsall

Phil Bounsall

As president at Walker, Bounsall is focused on the development and execution of strategies and operating plans designed to enhance Walker’s position as a global leader in customer intelligence. Bounsall also works with Walker’s client service teams to help meet the needs of Walker’s clients.

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