Growing Small Businesses

Lesson 2: Positioning your product or service

Competitive advantage

Markets include suppliers and customers. You're a supplier and you've now got your customers figured out - it's time to pay some attention to the other suppliers. That's because you'll find that your business goes up and down even when you're not changing anything and that's probably because the other suppliers, your competitors, are doing something differently.

A good market is interactive. You make a good move, you get more customers, your competitors react. Before you do anything, you have to think about whether and how your competitors will react and whether you'll still be ahead after they do. If you just act and they react without any benefits anywhere, then you've weakened the market and everyone is going to be worse off.

Generally it is bad strategy for a small business to cut prices. Being a small business, there are usually bigger players with more staying power in the market and they will be able to match or undercut your prices and keep them low for longer than you can. In the short term customers benefit since they are paying less for the same things but, in the longer term, businesses which are selling at a loss will try to cut costs and the quality of their products and services will suffer. In the end, everyone loses.

The best moves you can make are the moves to which your competitors can't respond. After studying your customers, you have to study your competition because, to predict what kind of response they will make to your move, you have to know what their strengths and weaknesses are.

Typical examples of strategies which competitors can't effectively match can be seen from our computer supplier example.

• If you're serving a local market and are the only local supplier, emphasize your proximity to customers, that you can be there for service quickly and that they don't have to go far.
• If a second supplier opens up locally, stop emphasizing your proximity and instead emphasize that you've been in business longer.
• If your competitor is matching your products and pricing, become the local supplier of a brand which gives you a protected territory. Then emphasize your link with that brand.
• If you have formal training or certification and your competitor doesn't, emphasize that. If he gets the same, stop.

Ideally, you try to find something which your competitors can't or don't want to match. Near where I live a small computer supplier decided he would service and repair units that came in on the spot, while customers waited, whenever possible. Many computer problems are fairly minor and, if the technician is good, he can fix a lot of problems very quickly. Many customers, on the other hand, were willing to wait if it meant they could take their computer back with them saving time and a second trip. This proved a very successful strategy for this supplier because he was good enough to be able to fix things most of the time and he was able to work with customers looking on. None of his competitors wanted to do this so he had this market to himself. Unfortunately his other business practices were not as well thought through and his business failed after three years.

The key to developing your competitive advantages are to concentrate on what you do best. That's probably something you do better than average. That's where you put your added value and that's where your emphasis to your target groups must be. Then the prospective customers you target will buy from you because you're the best at what they value. Again, you closed the circle and everyone benefits.

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