Simply put, a Sustainable Competitive Advantage provides superior business results versus competition through greater efficiency and/or a valuable, differentiated, customer offer. It has to be durable, so it lasts over time, and it has to be difficult to imitate, so the competition can’t easily copy it. It often results from continuous innovation, so that by the time your competitors have figured out how you do it, you’ve moved on to something else or added a new twist.
When you get right down to it, achieving a Sustainable Competitive Advantage is about using and developing competencies – assets, knowledge and skills – to create unique and significant value for yourself and your customers in ways that your competition cannot easily match or copy. The key is focus – focus on customers and trends to understand how to use your competencies to create value. Focus involves the entire business – the products you offer, how you market and distribute them, communicate externally and internally, how you source raw materials and manufacture products, use technical and R&D support, and how you choose which customers, markets and geography to serve. Focus is also about choosing what you don’t do, which activities don’t add value, and which customers and markets you can’t efficiently serve.
Sustainable Competitive Advantage – Nordic Example
Here is a visual approach to defining and crafting your Sustainable Competitive Advantage. This example is based on a strategic evaluation I did a couple of years ago for an unattended retail gasoline network in one of the Nordic countries. Although it’s a little bit dated, I chose this example because it clearly demonstrates how focusing on customers, carefully choosing which competencies to develop and concentrate on and which activities to eliminate can create a competitive advantage with a pretty simple business model.
First we identified critical success factors, those few things you absolutely have to get right to succeed. In the Nordic case, the company had been extremely successful with the highest unit sales in the industry, so the focus was on understanding and meeting the demands of existing customers. It was clear from customer feedback and surveys that the company’s customers absolutely wanted a low price and fast efficient service. Makes sense, doesn’t it? Who wants to pay more for gasoline than you really have to? In fact nobody really wants to buy gasoline at all. The problem is you need it for your car to run. So it’s not surprising that in addition to a low price, customers wanted to spend as little time as possible doing what they didn’t want to be doing in the first place – buying gasoline.
With the Critical Success Factors established, we started to focus on the competencies and activities that delivered the value demanded by customers.
First price – In this market all major fuel retailers had loyalty programs that offered various classes of customers rebates on their fuel purchases. Rebates were granted on the monthly bill as discounts off the price posted at the pump. So virtually none of their customers actually paid the price displayed at the site. Our unattended company took a different approach – no rebates. Every customer paid the same price, and that price was boldly displayed on the biggest price signs in the industry. The company had a clear pricing policy and vigilantly maintained the lowest posted price among major competition, even if their moves resulted in local price wars. In reality, the cash price charged by the unmanned company was often higher than the net price some of the competitors’ customers paid after rebates, but they would have needed a computer to figure that out.
And to ensure that customers got in and out as quickly and efficiently as possible, all of the unattended company’s locations had the same simple layouts, with all fuel grades and payment options available at all filling locations. They didn’t offer diesel, which eliminated truck traffic and the associated congestion. By eliminating trucks, their sites needed a much smaller footprint, which made it easier and cheaper to select only prime sites on major roads with easy access and egress. The network was 100% owned and operated by the company, which gave them complete control of the operation and pricing – very important if your strategy is based on price. The competitors’ sites were a combination of company and dealer operated, and ranged from old fashioned service stations to large, modern convenience stores. Most of their sites offered a range of service options, from full service to self service and pay at the pump. But because of the range of layouts and service, customers often had to search through a maze of pumps to find the location that offered their grade and preferred payment option. Not very convenient at all. By focusing on consistency, simplicity and top quality locations, the unattended company not only offered superior convenience to customers, but had a much leaner organization and lower costs than their competitors, which is also important for a successful low price strategy.
Of course the most important element in any business is execution. The unattended company had a clear, simple strategy that was well understood by everyone in the organization from the CEO to the receptionist. The workforce was empowered and highly motivated. They developed automated systems using cell phone text messages to enter data remotely and allow rapid implementation of price changes, even remotely updating price signs. They were highly focused on keeping sites clean, well maintained and operating 24/7.
The Big Picture
By putting everything together you get a pretty good picture of how this company was able to consistently maintain the highest unit fuel sales in the industry and enjoy superior financial results while most of their competitors were losing money.
Of course, the success of the unattended company was readily apparent to the competition, and many attempted to copy the unattended concept. How difficult could it be? But none of those attempts gained traction with customers, because in every case the imitator missed major elements important for success but not obvious to outsiders. Some of the major competitors set up unattended networks under a secondary brand, but kept their rebate systems. Some converted failed full service sites to failed unattended sites. Location does matter! Some independents tried unattended sites with even lower prices, but chose poor locations and failed to keep sites clean, open and well maintained.
One last point – Looking at the business this way can highlight gaps or potential for improvement. In this case the company identified the opportunity to use payment data from customers to promote improved customer interaction and feedback.
I have used this approach with many different businesses, and it almost always generates discussion, argument, insights and ideas that you don’t normally get with traditional strategic analysis. Often you end up with more green bubbles (gaps and opportunities for improvement) than blue ones. The green bubbles then become your short and long term strategic focus to strengthen your competitive position and create that elusive Sustainable Competitive Advantage.
If there’s interest, I’ll post some other examples of this type of analysis in different businesses and industries.
Tell me what you think!!