Define your business competitive advantage

Key takeaways

• Competitive advantage is what sets you apart from competitors, whether through unique offerings, cost efficiency, brand reputation or other factors.
• Your competitive advantage should sit at the core of your business and marketing plans to maximise its impact.
• Make sure to regularly review and strengthen your competitive advantage, as competitors will try to copy successful strategies over time.

For a small business, success is usually a combination of three linked elements: a clear business plan, a solid marketing strategy and a well-defined competitive advantage. But in order to develop your business plan and set your marketing strategy, you first need to understand your competitive advantage – the thing that makes your business unique.

In this article, we’ll introduce you to the concept of a competitive advantage and give you some tips and advice on how to capitalise on what it is that makes your business stand out from the crowd.

Helpful ANZ resources:

• Why you need a small business plan 
• Small business marketing strategy: Why it’s essential
• Getting started with digital and social media advertising
• Starting social media for your business

What is a competitive advantage?

In short, a competitive advantage is what sets you apart from your competitors. If you were a bakery on a street full of bakeries, but you were the only bakery selling bread made from organic, locally sourced ingredients, that could become your competitive advantage.

Some businesses will have a competitive advantage built in – for instance, if you set up the only cafe in the neighbourhood – while other businesses will find their competitive advantage in the way that they operate.

It’s a question of understanding your competitors and the market you’re in. When you look at other businesses operating in the same industry and the customer benefits they offer, what is it that makes your offering stand out? Is it higher quality or easier to use? Is it more affordable than others, or is it the same price but you’ve worked out how to do it more cheaply? 

By identifying your competitive advantage you can better identify your target market, set business goals and develop a marketing strategy that speaks effectively to your potential customers.

Different types of competitive advantage

While competitive advantage can take many different forms, there are a few broad categories that can guide your thinking:

• Unique offering: you provide products or services that are distinct from competitors and cannot be easily replicated. 
• Cost efficiency: you operate with lower costs than your competitors, so you can offer better prices or achieve higher profit margins.
• Brand reputation: people trust your brand more than they trust your competitors’, creating loyal customers who will pay a brand premium.
• Technology and innovation: innovative use of technology means you can build first-mover advantage and operational efficiency.
• Customer focus: you understand your customers’ needs and offer exceptional service, creating strong and ongoing customer relationships.
• Strong partnerships: strategic alliances give you access to resources, markets or capabilities that other businesses can’t match.
• Strong culture: you have a positive company culture that attracts top talent, drives employee engagement and creates consistent execution.

Putting your competitive advantage to work

Your competitive advantage should sit at the very core of your business and marketing plans.

Once you have identified where your unique strengths lie, it’s important to start leveraging them. Hold a cost efficiency advantage? Consider changing your pricing scheme to take full advantage. Have an excellent team working for you? Give them the resources they need to innovate and improve your business. Have a reputation for value and quality? Make big pushes on sales periods like Black Friday or the Christmas season.

While your competitive advantage may seem obvious to you, don’t assume your customer understands it too. Make sure your marketing messages are built around what makes you different and keep the language consistent across channels and campaigns. Clearly state your competitive advantage (don’t leave it to the customer to work it out) and support the claim with stats and awards where relevant. Start by reviewing your current marketing materials and seeing where you can articulate your competitive advantage more clearly.

Maintaining your competitive edge

Unfortunately, the nature of business is that the stronger your competitive advantage, the more rapidly your competitors will change their own business practices to try and do the same thing.

There are some basic steps you can take to protect your advantage, including registering your brand name and logo as a trademark, asserting copyright on your marketing material and applying for a patent on any innovative technologies you may have created.

However, the only definitive way to protect your competitive advantage in the long term is by continuously improving your operations and staying on top of market trends and competitor activity. 

It can be helpful to schedule regular reviews of your competitive advantage to ensure you’re maintaining your business’ unique strengths. Ask questions like:

• Has your business model changed? Do you have any new competitive advantages to leverage?
• Have market conditions changed? Do your competitive advantages still work?
• Is your marketing strategy still effective? Are you talking to the right people on the right platforms?
• Can staff communicate your competitive advantage in a clear and compelling way?
• Do customers still find the same value in what you do? Should you seek customer feedback?

Start building your competitive advantage

Understanding and leveraging your competitive advantage is essential for long-term business success. By taking the time to identify what makes your business unique, you can build more effective marketing strategies, attract the right customers and create sustainable growth. 

The key is to be honest about your strengths, communicate them clearly to your market and continuously work to maintain and improve them. It starts with a simple question: what is it that makes your business stand out from the crowd?

Check out Section 4 of our ANZ Business plan template (PDF 591kB) for a few prompts to help you get started on your small business differentiation strategy.