You have probably read and heard a long list of methods and strategies for your business to compete in the marketplace. Reality is there are only two ways and here they are.
- You make a better product. That sounds so simple. If your product or service does a better job than the competition then your competitive advantage is improved. Of course this is easier said than done. How do you go about providing a better product? You may do more research and development, streamline your services, train your human resources better or provide round the clock customer support. All these are good examples of how you can make your product better. Note that by “product” I don’t just mean the actual item you sell. I am also talking about all the before and after sales support that you will provide for it.
Of course all this comes with a price. You need to conduct some analysis of what it would cost to make your product better. And this may lead to your product becoming more expensive. People may be willing to pay for a higher priced product if it is truly better. We see this all the time such as higher priced furniture because the quality and craftsmanship is better, higher priced cars, houses, clothes, restaurants, resorts, gadgets. Providing a better product moves you away from providing a “commodity” product. Your offering is unique, different and of higher quality.
- The second strategy is to make your product cheaper. Walmart became the company that it is by being a price leader. It offers products at a lower price consistently. Dollar stores are another example. But you could also have niche areas. Say a lower priced luxury car. The Mustang was a classic example. Costume jewellery is a whole line of business offering a cheaper alternative to the real expensive variation. Zircon versus diamonds, gold plated jewellery versus solid gold, laminate floors versus hardwood.
You can see there is a common thread in the “lower price” strategy. You have to find materials and processes that allow you to provide a lower price alternative. It will be very hard to just plainly lower the price of a diamond ring to beat the competition. That is more of a tactic rather than a strategy and it cannot be sustained in the long run. Price wars just erode profits. No, you have to look at your product line and figure out how to produce a lower priced alternative that still provides healthy profits.
You could of course combine the above two strategies. Just imagine if you could provide a better product at a lower price than the competition. This is usually possible when a new technology has emerged to allow that. New computers are constantly getting cheaper even as they get more and more powerful.
So to recap, two ways to compete: better or cheaper (or a combination of both).
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