As was mentioned in the previous video, part of an effective strategy is creating “fit” among a company’s activities. When that fit is executed well, the firm usually is able to build a sustainable competitive advantage. But what is a sustainable competitive advantage, especially with respect to retailing? Before we look at the definition os sustainable competitive advantage. I have a little quiz.
Can a retailer develop a sustainable competitive advantage by
- Dropping the price of merchandise?
- Building a store at the best location?
- Deciding to sell some hot merchandise?
- Increasing its level of advertising?
- Providing better customer service?
Pause this video and see if you can figure out which of these is a proper sustainable competitive advantage.
OK, did you figure it out? Let’s go over each of them.
Dropping the price of merchandise is not sustainable. As a former professor of mine once said, “competing on price alone is the sign of a weak marketing mind.” So just dropping your price isn’t very sophisticated and your competitors can just do the same thing and then it’s a race to the bottom.
Building a store at the best location? Yes. Like the new Starbucks Reserve location on Chicago’s Magnificent Mile, that is a sustainable competitive advantage. Once a location has had a building built on it, that’s it. No other business can use that spot. So that’s a perfectly sustainable competitive advantage.
Deciding to sell some hot merchandise? Well, no. Not only is “hot” merchandise something that can be very fleeting, it’s something any retailer could add to the list of products they sell, often with little advance notice. The exception here is if that “hot” product is one only you can exclusively sell. Then that’s a sustainable competitive advantage.
Increasing its level of advertising? Nope. Again, your competitors are probably already tracking the advertising you’re doing, the channels you’re using, how much you’re probably spending. If they want to keep pace with you, that’s an easy thing to do. But if you manage to get the best, most talented agency to do your advertising, and you execute on a superior strategy, then you might be able to have some sustainable advantage.
Finally, providing better customer service? Absolutely! Hiring the right people, giving them the right training, and establishing the right processes will help create customer service that is difficult for your competitors to replicate.
If you hadn’t guessed, Sustainable Competitive Advantage is an advantage over the competition that is not easily duplicated and can be maintained over a long time. And you really don’t have a useful business strategy if you’re not figuring out a way to maximize sustainable competitive advantages.
Finally, let’s look at some sources of of competitive advantage that are more or less sustainable. First those activities that tend to be more sustainable.
- Location. We’ve already talked about this being one of the key sustainable advantages a retailer can have
- Customer service. Again the right people and training can make a huge difference
- Customer loyalty – You can’t buy this. It comes by treating customers right and providing a lot of value.
- Exclusive Merchandise – it’s much more difficult for other retailers to compete when they can’t see the same product.
- Low-cost supply chain management – wringing efficiencies out of your supply chain and partnering with the right firms can be difficult copy
- Information systems – yes, you competitors can buy the same computers, but its the management of those systems and customizations that are difficult to replicate
- Buying power with vendors is a huge advantage if a retailer is big enough to leverage it
- Committed employees – like customer service to the customer, committed employees provide an immeasurable advantage to a firm
And what about some things that are less sustainable:
- More advertising, again advertising is easy and your competitors are probably just as good as it as your are
- More promotions. Sure, drop the price. It’s not like your competitors can do that too. That was sarcasm if you didn’t notice
- Better computers – Really?
- More employees – maybe, but it’s quality not quantity that counts
- More merchandise – Um no. That just makes managing your own store more complicated and your competitors can do the same thing
- Greater assortments – this one sounds good on the surface, but again it makes managing your own inventory more complex and your competitors can just do the same thing.
- Lower prices – again this is just a race to the bottom
- Cleaner stores – um, ya. Any retailer can clean their store–and should. That’s a pretty low bar.
To wrap up, competitive advantage is an edge that you have over your competition and its only sustainable to the degree that your competitors can’t simply recreate it themselves. Your best bet is to leverage the advantages things like site location, customer service, and exclusive merchandise give you.