Tips for entrepreneurs:
Determine your competitive advantage

What is your company's competitive advantage? A competitive advantage is a unique benefit that your company offers your primary customers (i.e. target markets) that differentiates you from your competitors (i.e. fast service, high client retention, low product returns, open 24/7, high referral rate, well trained and knowledgeable employees, etc.).

A competitive advantage enables your company to create superior value for its target markets. It can also lead to higher profits. "We have the lowest price" should not be your competitive advantage. Getting into "price" wars with your competitors will only decrease your profits.

Ask yourself, who are your best customers and what are you doing to satisfy their needs? Who are your competitors and what are they doing to satisfy customers' needs?

Your direct competitors are those companies that offer the same products/services as your firm. For example, if you operate a skating rink, you are in the recreational/entertainment industry. Your direct competitors would include other skating rinks in your area. Your indirect competitors include companies that offer alternative types of recreation/entertainment such as movie theaters, miniature golf courses, bowling alleys, etc. Many times companies assume they don't have any competition or that their competitors are inferior.

Your strategic plan and the success of your business will depend upon your ability to gather competitive intelligence on a continual basis, analyze your competitors, plan on how you can effectively deal with them, and then take action. Remember, it's all about the customers' perception of your company and your competitors. Your customers' "perceptions" are "reality" to them. Customers will usually buy from the company they believe will best meet their needs (i.e. selection of products/services, hours of operation, customer service level, convenient location, expert advice, good website, credit card acceptance, etc.).

The marketplace in which your business exists is comprised of people who want to buy your products/services (i.e. your target market), people who desire to purchase your competitors' products/services, and people who wish to save their money instead of making a purchase. You need to understand these groups of customers, the types of buying criteria they use to purchase your products/services (i.e. location, expertise, preferred brands, frequency or timing of purchases), and their buying behavior (i.e. when, where, how, and what they want to buy). What is really important to them? What decision making method do they use to decide if they should purchase from you, another business, or no one at all?

Discover your company's image in relation to your competitors in the marketplace. This is referred to as your "position" in the marketplace. You will need to carefully analyze your customer's view of your company and your competitors. During this process consider what your company does better than your competitors, what the competitors do better than your firm, and what you can do to overcome the competition.

Use the following six steps to analyze your competition:

1. Research information about your competitors by using the Internet. Check out their websites to see what type of new or existing products/services they offer, certifications, trade organization endorsements, etc. Read customer comments in industry-related blogs. Examine product/service reviews and ratings.
   
   
2. Check with trade associations and other industry groups to find current market research statistics about the competition.
   
   
3. Talk to your competitors' salespeople, distributors, customers, and employees. Don't be offended if people think your business is considered inferior to your competition. Instead, start thinking of ways to improve.
   
   
4. Survey your current customers and former customers by using phone interviews or focus groups. Listen to their opinions of both your company and your competitors. Get your sales force or employees to gather information from customers and prospective customers. Ask your customers to tell you what their best and worst experiences have been in dealing with your company. Ask them what they would like to see changed in your company. What additional features, products or services would they like to see offered by your firm? Why did former customers leave your company?
   
   
5. Examine your competitor's advertising and promotional techniques. Watch, read and listen to your competitors' advertising messages.
   
   
6. Shop your competition. Visit and purchase from their store, website, etc., to better understand their methods of operation, products and services.
   

You need to track the preferences of your target markets regularly by staying in constant contact with them and altering your products/services accordingly. If you have several target markets, you may have different competitive advantages that appeal to these different groups of customers. Continue to stay in touch with changing preferences by informal face-to-face discussions, in-store surveys, and feedback requests in your store or on your website.

This process of gathering competitive intelligence will enable you to determine the strengths and weaknesses of your company in comparison to your competition. Carefully examine the opinions of current and former customers. Refine your company's competitive advantage and image. Then target new prospects and increase your profitability by advertising your competitive advantage.

This is an ongoing systematic process. Remember to analyze your direct and indirect competition, because they will be analyzing your company.

- Karen Bradshaw, Director of the Center for Entrepreneurship at Missouri Southern State University and business specialist, MSSU Small Business and Technology Development Center

(This article is reprinted with permission from the Joplin Tri-State Business Journal.)

This story was featured in the May 2010 newsletter