A business builds and sustains growth because it is different from competitors in ways that are important to customers. Growth means more customers are choosing you.
But this is a deceptively simple concept. What does “competitive advantage�? really mean, and how do you make this idea stick?
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First, we need to understand that all business results are determined by customer choices. Consider these two graphs:
Medallion Financial Corporation (TAXI) is a financial firm that does the lion’s share of origination and servicing of loans for taxi medallions (licenses to drive cabs). Look at the huge drop in its stock price in the last 12 months:
Now look at the dramatic monthly growth in Uber drivers during the same time period:
It’s safe to say that people who need a ride from one place to another are making different choices than they did a year ago. They are choosing Uber (or other ride-sharing services like Lyft) at a vastly higher rate. TAXI’s market cap is way down because riders are making different choices.
So, what exactly is driving rider choice (pun intended)?
Consider two circles. The yellow circle on the right represents the needs of the rider. For example, they need to go from point A to point B, they’d like a courteous driver and air conditioning in the vehicle, they desire a fair price, etc.
The red circle represents the value delivered by a taxi cab (from the point of view of the potential rider). The overlap represents the value delivered by the taxi cab to the rider.
For over 120 years, taxis have been providing value to customers when it comes to place (getting people from A to B) and time (getting them there faster than, say, walking).
Now let’s add a third circle, representing Uber’s value (blue). The resulting Venn diagram has 7 areas. While each zone is meaningful strategically, let’s consider just three of them for the moment.
In the middle is the gray zone, where we find time and place. These are points of parity, benefits that are no longer unique to taxis.
But Uber’s growing dominance in this market is because of the unique value it delivers (green zone) relative to that of taxis (orange zone). Uber produces far superior benefits when it comes to ease of ordering, certainty of car arrival time, ability to see the route taken, ease of payment, and quality control (driver rating system).
In contrast, the orange zone (the unique value delivered by taxis) is empty. So it’s no wonder that rider choice has shifted dramatically as a result.
Looking at competitive advantage via three circles is simple, and that’s the point. It provides a way to bring competitive strategy concepts to the surface quickly and sharply.
Find YOUR competitive advantage in 3 minutes
Now it’s your turn. Grab some teammates. First, draw some circles:
- Yellow circle. Think of a customer. Be specific and think about their name, background, and what they need. They have a problem to solve and are making a decision – a choice between your offering and some other competing options.
- Blue circle. Identify your “offering�? to that customer. What service or product do you provide? Again, be specific.
- Red circle. When that customer is making that choice, what are the other options they are likely to consider? Make a list of those competitive choices, and, for now, just focus on one of these competitors.
Now, as a team, answer these questions separately and then compare notes.
1. What value is in your green zone? What are the unique, important reasons that customers choose you over the competitor? This is the distinctive value that you believe you deliver to this customer that your competitor does not. Think broadly. Then ask yourself…
- What are you doing right now to build, defend, and communicate your points of difference?
2. What value is in your competitor’s orange zone? What are the unique reasons that your customer might choose your competitor?
- What are you doing right now to neutralize the value your competitor provides?
Now compare notes with your team members. You may assume that every team member will produce the same analysis in this exercise. Odds are, you are wrong.
You’re likely to find (potentially large) disagreements about the green and orange zones in your market. Don’t worry – this is healthy and will ultimately lead to the most important question of all:
- What does your customer really think?
This is one of the most critical conversations a brand or product team can have about its competitive strategy and prospects for growth. Identifying your competitive advantage depends on a deep understanding of how customers make choices.
Customer choices drive business results.
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Co-author: Griffin Eaton