Where is your competitive advantage?

Your business has a competitive advantage when customers believe your products and services are superior to your competitors’.

Many small business owners do what they see will succeed. Tempting, but it can get you into trouble. Why would customers buy from you if you’re indistinguishable from your competitors, who they already have history with? From the customer’s point of view, you’re the more risky alternative.

How do you lower that risk? By crafting a competitive advantage and clearly communicating your advantage to the customer. Let’s take a look at the most popular forms of competitive advantage:

Price/Value Competitive Advantage

  • This competitive advantage can include things like:
  • Improved process efficiencies
  • Skilled staff
  • Favourable location
  • Optimal outsourcing
  • Access to cheaper resources and inputs
  • Cost avoidance
  • Superior technology
  • Lower marketing expenses
  • Efficient distribution channels
  • Effective partnerships or alliances
  • Lower overhead
  • Waste reduction

Your small business may have lower costs than your competitors, while still seeing reasonable profit margins, by either selling your products at average prices to earn a profit higher than the competition, or at below average prices to gain market share. If superior prices aren’t possible, you can also get an advantage over the competition by offering superior value in your products or services.

Niche Markets Competitive Advantage

Serving a niche market means selling to a region overlooked or not currently being served, or a distribution channel.

You can get a niche market advantage by offering a product or service with unique attributes that customers of an underserved market love. There’s a potential for high demand here, which means you may be able to offer your product or service for a premium price. In this case, you’ll need to keep up with research and demand. Stay innovative while remaining connected to the customers in your niche.

Adaptability Competitive Advantage

Your small business may get an advantage over competitors through your ability to adapt to changing markets and demands. Small businesses can often adjust processes and procedures much faster than some larger competitors. When you adapt faster and more accurately, your business may be able to offer a superior product or service to the market first, before your competitors can get back on their feet. This opens up the possibility of a monopoly (where you would be the only company in the market offering the product or service) for a while.

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Small business blog posts we liked this week

From competition to dog food trucks, here are four small business blog posts we enjoyed reading this week. We hope you’ll like them too!

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How understanding Porter’s 5 Forces Model can help your small business

industry-analysisIndustries don’t stay the same for long. So how do you analyze your industry when it’s constantly changing? It helps to have a framework.

According to Harvard University professor Dr. Michael Porter, there are five main forces that determine competitive intensity and overall industry profitability. Here’s Porter’s 5 Forces Model. Apply it to your small business’ industry and you should gain a clearer picture of what’s going on.

1) Intensity of Competitive Rivalry

This refers to direct competition between companies in the same industry, and degree of aggressiveness of rivals.

2) Threat of Entry of New Competitors

New companies often enter the market that compete with existing companies. How do they change or impact the industry?

3) Threat of Substitutes

This is the existence of companies offering products or services that may be substituted for your product or service. This can also include the customer’s ability to switch to alternatives.

4) Bargaining Power of Suppliers

Suppliers of raw materials, components, labour and services can hold significant power if the resources they provide are unique or scarce, or if there are only a few suppliers.

5) Bargaining Power of Customers

This includes the power that customers hold — including the ability to put a business under pressure — and the effect of customer sensitivity to price changes.

 

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A handy way to help analyze your competition

small_business_competitionAnalyzing your small business’ competition is a very important aspect in start-up, and beyond – we’ve talked about it in the context of choosing your business’ location, for example.

But what do you do with all the data you collect in your competition research? How do you know what to look for when you’re analyzing your competitors? Wouldn’t it be great if there was a handy chart were you could note factors such as location, target market, reputation, advertising expenditure, strengths, and weaknesses?

We think it’s a handy tool too, so we created one! GoForth’s How Do I Measure Up? Competitive Matrix is a no-nonsense, one-page comparison chart for your small business and three competitors. You can see, at a glance, how your small business stacks up against the competition.

And the best part? It’s free to download in PDF form. So check out GoForth’s How Do I Measure Up? Competitive Matrix, one of the many small business templates and checklists we’re happy to offer to entrepreneurs just like you.

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How to determine pricing for your small business

You’re ready to start selling your great new service or set of products. So, how much are you charging? If your answer to that question was a shrug, read on!

Figuring out your pricing

Finding a good price for your product or service can be tricky. You need to find a balance between a price that’s appealing to customers but will also make you money. It’s also easy to doubt or second-guess your decisions. You may want to charge a high price to make more money, or charge a low price to undercut your competition. It’s a fine balance, with several elements in it.

Consider these things when figuring out what to charge for your small business’ offerings:

  • The costs that go into the development of this product or service – both fixed and variable. If you don’t at least cover these costs, you’ll lose money.
  • The prices of similar products or services that already exist in the market Try to stay within that range. How does your product compare to others in the industry? Are your customers willing to pay more for a new feature, or do higher prices meet with complaint?
  • The values associated with your product or service that are behind the scenes – things like reputation, durability and customer service.

The three methods of determining price

  • Cost-Based Pricing. This method involves setting your price high enough to cover the costs you generate when producing your product. Mark-ups can range from 10% to 60%.
  • Value-Based Pricing: Wit this method, you figure out the value customers receive from your product or service. Is your product exceptionally well-made? Is there prestige attached to your name (like with designer clothing)? Do you have unusually good warranties or customer service? Are you an expert in your field? Value-based pricing tells you what your customers are willing to pay, rather than just covering your production costs.
  • Competition-Based Pricing: Here, your base price follows what your competition is charging. Where you fall in this line depends on your industry, image and what you’re offering. With luxury items, it’s not unusual for prices to reach on the high side to seem more extravagant. But with convenient and common products or services, prices are often on par with or even lower than the competition (think of all the sale flyers you receive and the kinds of companies that send them). Choose your prices carefully with this method – prices way off the mark can see your customers flock to your competition.

Good luck and happy selling!

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