Lately I’ve been mulling over the concept of “competitive advantage.” It seems so simple and straight-forward. It’s whatever gives you a leg up on the competition. And, indeed, that is basically what most of the definitions say.
The problem is not with the concept. The problem is turning the concept into something real and revenue producing.
And the definitions and models don’t help. They essentially look back in time and say that successful companies have a competitive advantage, and the competitive advantage is what made them successful. (You can get quite dizzy trying to follow this circular logic.)
Yes, I know that Michael Porter famously broke down competitive advantage into (1) cost advantage and (2) differentiation advantage. But after saying we should lower costs, increase productivity, and have a market-based differentiation, the models don’t really help a lot in the creation of a competitive advantage, on the ground, in the real world.
Let’s examine some of the assumptions.
(1) Competitive advantage by cost advantage: What viable company is not looking to reduce costs and increase productivity? But let’s assume that your company is particularly adept at doing this. The natural corollary then is that you should now compete on price. This is a dangerous strategy, as I have discussed elsewhere. Beyond that, however, competition by price brings with it the risk of decreasing margins as your competitors try to retain market share by price cutting – or have found that same cost savings you did.
(2) Competitive advantage by differentiation: The model posits “distinctive competencies.” This approach essentially takes a resource-based perspective, including natural resources, skilled and trained personnel, technology, etc. And it can be expanded to include strategies “that lift a firm to superior performance.”
Here’s what interesting about the definitions, models, and approaches. They do not include a role for marketing. There is no discussion of how marketing – branding, corporate identity, messaging, product management, or any other aspect of marketing – can have an effect on a firm’s success in the marketplace.
With all due respect to the modelers and business gurus, this assumption is just plain wrong.
In fact, done correctly, I would argue that marketing is critical to creating a competitive advantage.
Think about it. Why is it so difficult for new companies to gain traction in the marketplace – even if they have cutting edge technology, a committed and skilled workforce, and are willing to sell at a good (competitive) price? Name recognition. People usually go with what they know; and that is branding and corporate identity.
Think about it. Isn’t gaining a competitive advantage dependent, at least in part, on how products/services are positioned in their market space? A great product at a great price can die if it is pitched to the wrong audience – or pitched wrong to the right audience. And that is market segmentation, positioning, and messaging.
In fact, what may seem to be a competitive edge on paper is not a competitive edge until it is accepted as such by the marketplace. And that is marketing’s role. With all due respect to flow charts, spreadsheets, and models, there is no “advantage” until it is marketed, i.e. communicated to customers and prospects in a way that resonates with them.
So I would argue that marketing is a significant factor in creating a firm’s competitive advantage in the real world marketplace – and in maintaining that competitive advantage in the real world marketplace.
Marketing, at its best, works with Product Development, helping the engineers and technical people understand customer behavior, why they buy, what is – and is not – important to them. Strategic marketing looks down the road, discerning emerging trends and potential opportunities. Tactical marketing develops messages and product positioning to maximize impact and acceptance in targeted market segments.
All this, together, helps a company develop a competitive edge. All this, together, is what marketing does everyday. Marketing takes the conceptual “competitive advantage” and brings it to life in the battle for customer and prospect mind share.
