Establishing a winning position in the marketplace is obviously critical to your company’s success. The position, however, must be based on a sustainable competitive advantage.
What constitutes an unbeatable advantage? There are two choices:
1. You have consistently lower costs than your rivals. As long as your product or service maintains an acceptable quality level, this advantage leads to higher margins.
2. You differentiate your product or service from your competition. In other words, your company is unique because it delivers something your customers think is important. That allows you to command a premium price. And provided you keep your costs under control, the premium price translates into a superior return.
There’s one other important variable in strategic positioning – competitive scope. Some companies seek an advantage in what might be called a broad scope by serving all types of customers, offering a wide product line and operating in many geographic areas.
Alternatively, companies with a narrow scope focus on a limited range of customers, products, or geographic areas and dedicate all their efforts to that small niche or market segment.
In cars, for example, Toyota is the broad competitor while BMW and Mercedes-Benz are differentiators in the premium segment.
There’s room for several successful strategies, as long as each company makes a different choice from its rivals. The worst error is not to choose – to try a little bit of everything – and therefore have no advantage at all. Being “stuck in the middle” doesn’t work because all good strategies involve trade-offs. You generally cannot be both low cost and differentiated because being unique at quality or service usually involves higher expenses.
Any strategy, of course, is only as good as its execution. Here are five other mistakes that business owners frequently make in applying strategic thinking to their competitive situations.